Question 1

The prime rate

Accepted Answer

A)  is the rate a bank charges its risky customers. 
B)  has been quite volatile during the past two decades, moving several percentage points in a 12-month period. 
C)  is usually lower than Treasury bill rates. 
D)  None of these options are true. 
A)  is the rate a bank charges its risky customers. 
B)  has been quite volatile during the past two decades, moving several percentage points in a 12-month period. 
C)  is usually lower than Treasury bill rates. 
D)  None of these options are true. B

Question 2

If Analog Computers can borrow at 8% annually for three years, what is the effective rate of interest on a $1,000,000 loan where a 15% compensating balance is required?

Accepted Answer

A)  11.18% 
B)  17.27% 
C)  9.41% 
D)  24% 
A)  11.18% 
B)  17.27% 
C)  9.41% 
D)  24% C

Question 3

Analog Computers needs to borrow $475,000 from the Midland Bank. The bank requires a 15% compensating balance. How much money will Analog need to borrow in order to end up with $475,000 spendable cash?

Accepted Answer

A)  $546,250 
B)  $758,264 
C)  $558,824 
D)  $71,250 
A)  $546,250 
B)  $758,264 
C)  $558,824 
D)  $71,250 C

Question 4

Leontief's Wigs can take a cash discount but has to borrow money from the bank to do so. The bank offers a 16% interest rate. The terms of the cash discount are 2/10, net 60. Because of this, Leontief's should borrow from the bank to take the discount.

Accepted Answer

A) True 
 B)False

Question 5

A term loan is usually characterized by

Accepted Answer

A)  a maturity of one to seven years. 
B)  a variable interest rate. 
C)  monthly or quarterly installment payments. 
D)  all of these options are true. 
A)  a maturity of one to seven years. 
B)  a variable interest rate. 
C)  monthly or quarterly installment payments. 
D)  all of these options are true.

Question 6

Multinational firms have found that they can lower borrowing costs

Accepted Answer

A)  by borrowing Eurodollars at a lower rate than the U.S. Prime Rate. 
B)  by borrowing foreign currencies through foreign subsidiaries at rates lower than the U.S. prime rate and then converting these foreign loans into dollars. 
C)  by using more bankers' acceptances. 
D)  by borrowing Eurodollars at a lower rate than the U.S. prime rate and by borrowing foreign currencies through foreign subsidiaries at rates lower than the U.S. prime rate and then converting these foreign loans into dollars. 
A)  by borrowing Eurodollars at a lower rate than the U.S. Prime Rate. 
B)  by borrowing foreign currencies through foreign subsidiaries at rates lower than the U.S. prime rate and then converting these foreign loans into dollars. 
C)  by using more bankers' acceptances. 
D)  by borrowing Eurodollars at a lower rate than the U.S. prime rate and by borrowing foreign currencies through foreign subsidiaries at rates lower than the U.S. prime rate and then converting these foreign loans into dollars.

Question 7

It is difficult to acquire a loan in U.S. dollars outside the United States.

Accepted Answer

A) True 
 B)False

Question 8

Kenneth's Arrows and Bows borrows $15,000 for one year at an 8% annual interest rate. What is the effective rate of interest if the loan is discounted?

Accepted Answer

A)  Less than 8.5% 
B)  More than 8.5% but less than 9.5% 
C)  More than 9.5% but less than 10.5% 
D)  More than 10.5% 
A)  Less than 8.5% 
B)  More than 8.5% but less than 9.5% 
C)  More than 9.5% but less than 10.5% 
D)  More than 10.5%

Question 9

Bank loans to business firms

Accepted Answer

A)  are usually short-term in nature. 
B)  are preferred by the banker to be self-liquidating. 
C)  may require compensating balances. 
D)  All of these options are true. 
A)  are usually short-term in nature. 
B)  are preferred by the banker to be self-liquidating. 
C)  may require compensating balances. 
D)  All of these options are true.

Question 10

Recent problems facing the U.S. financial system were the result of all but which one of the following?

Accepted Answer

A)  A huge increase in the amount of mortgage-backed securities being bundled up and sold in the markets 
B)  A huge drop in the value of mortgage-backed securities 
C)  An increase in the use of commercial paper for short-term financing 
D)  The government permitting commercial and investment banks to merge 
A)  A huge increase in the amount of mortgage-backed securities being bundled up and sold in the markets 
B)  A huge drop in the value of mortgage-backed securities 
C)  An increase in the use of commercial paper for short-term financing 
D)  The government permitting commercial and investment banks to merge

Question 11

The sale of asset-backed securities can sometimes enable the issuing firm to acquire lower-cost funds than it normally would receive from a bank loan or bond offering.

Accepted Answer

A) True 
 B)False

Question 12

Even during slack loan periods, banks will never loan out money at an interest rate lower than the prime rate because the prime rate is their best rate.

Accepted Answer

A) True 
 B)False

Question 13

General Rent-All's officers arrange a $50,000 loan for the company. The company is required to maintain a minimum checking account balance of 10% of the outstanding loan. This practice is called

Accepted Answer

A)  an installment loan. 
B)  a compensating balance. 
C)  a discounted loan. 
D)  a balloon payment. 
A)  an installment loan. 
B)  a compensating balance. 
C)  a discounted loan. 
D)  a balloon payment.

Question 14

The London Interbank Offered Rate (LIBOR) is used to set a base lending rate for some U.S. domestic corporate loans.

Accepted Answer

A) True 
 B)False

Question 15

Companies can use hedging to eliminate all or some foreign currency risk.

Accepted Answer

A) True 
 B)False

Question 16

The higher the cost of bank financing, the more beneficial it is to take the cash discount.

Accepted Answer

A) True 
 B)False

Question 17

Kantorovich Company normally takes 30 days to pay for its average daily credit purchases of $2,000. It has average daily sales of $3,000, and collects accounts in 25 days. What is its net credit position?

Accepted Answer

A)  $15,000 
B)  $1,000 
C)  ($1,000) 
D)  ($15,000) 
A)  $15,000 
B)  $1,000 
C)  ($1,000) 
D)  ($15,000)

Question 18

The commercial paper market is available to all New York Stock Exchange companies.

Accepted Answer

A) True 
 B)False

Question 19

The extent to which inventory financing may be used depends on the

Accepted Answer

A)  marketability of pledged goods. 
B)  price stability of goods. 
C)  perishability of goods. 
D)  all of these options are correct. 
A)  marketability of pledged goods. 
B)  price stability of goods. 
C)  perishability of goods. 
D)  all of these options are correct.

Question 20

Large firms tend to be

Accepted Answer

A)  net users of trade credit. 
B)  net suppliers of trade credit. 
C)  firms with high levels of profitability. 
D)  firms with low levels of inventory turnover and accounts receivable turnover. 
A)  net users of trade credit. 
B)  net suppliers of trade credit. 
C)  firms with high levels of profitability. 
D)  firms with low levels of inventory turnover and accounts receivable turnover.

Exam 8: Sources of Short-Term Financing

The prime rate

If Analog Computers can borrow at 8% annually for three years, what is the effective rate of interest on a $1,000,000 loan where a 15% compensating balance is required?

Analog Computers needs to borrow $475,000 from the Midland Bank. The bank requires a 15% compensating balance. How much money will Analog need to borrow in order to end up with $475,000 spendable cash?

Leontief's Wigs can take a cash discount but has to borrow money from the bank to do so. The bank offers a 16% interest rate. The terms of the cash discount are 2/10, net 60. Because of this, Leontief's should borrow from the bank to take the discount.

A term loan is usually characterized by

Multinational firms have found that they can lower borrowing costs

It is difficult to acquire a loan in U.S. dollars outside the United States.

Kenneth's Arrows and Bows borrows $15,000 for one year at an 8% annual interest rate. What is the effective rate of interest if the loan is discounted?

Bank loans to business firms

Recent problems facing the U.S. financial system were the result of all but which one of the following?

The sale of asset-backed securities can sometimes enable the issuing firm to acquire lower-cost funds than it normally would receive from a bank loan or bond offering.

Even during slack loan periods, banks will never loan out money at an interest rate lower than the prime rate because the prime rate is their best rate.

General Rent-All's officers arrange a $50,000 loan for the company. The company is required to maintain a minimum checking account balance of 10% of the outstanding loan. This practice is called

The London Interbank Offered Rate (LIBOR) is used to set a base lending rate for some U.S. domestic corporate loans.

Companies can use hedging to eliminate all or some foreign currency risk.

The higher the cost of bank financing, the more beneficial it is to take the cash discount.

Kantorovich Company normally takes 30 days to pay for its average daily credit purchases of $2,000. It has average daily sales of $3,000, and collects accounts in 25 days. What is its net credit position?

The commercial paper market is available to all New York Stock Exchange companies.

The extent to which inventory financing may be used depends on the

Large firms tend to be

The Goals and Activities of Financial Management

Review of Accounting

Financial Analysis

Financial Forecasting

Operating and Financial Leverage

Working Capital and the Financing Decision

Current Asset Management

The Time Value of Money

Valuation and Rates of Return

Cost of Capital

The Capital Budgeting Decision

Risk and Capital Budgeting

Capital Markets

Investment Banking: Public and Private Placement

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Convertibles, Warrants, and Derivatives

External Growth Through Mergers

International Financial Management

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