Deck 10: Investing, Borrowing, and the Time Value of Money

Question 1

What is a balloon maturity payment at the end of a term loan?

A) A "lighter" (reduced) final payment
B) A payment based on an increase in the prime rate
C) An "expanded" (large) final payment
D) The amount transferred to a renegotiated loan

Answer 1

An "expanded" (large) final payment

Question 2

A municipal bond can be issued by a ____.

A) not-for-profit hospital
B) medical facility owned by the federal government
C) state government
D) county hospital

Answer 2

county hospital

Question 3

United States Treasury bills at the time of issue are ____.

A) sold at par value
B) sold below par value
C) have maturities as long as 30 years
D) sold by banks and brokerages

Answer 3

sold below par value

Question 4

For-profit medical facilities that are deemed to act in the public interest may borrow money by issuing tax-exempt municipal bonds.

Question 5

The time value of money is based on the concept of ____.

A) inflation
B) interest
C) interest minus inflation
D) interest plus inflation

Question 6

A piece of major medical equipment has a remaining life expectancy of 6 years and will cost $100,000 when replaced. The bank offers a 6-year certifcate of deposit with an interest rate of 4%, compounded annually. How much will need to be invested to provide $100,000 at maturity?

A) $79,000
B) $19,494
C) $69,503
D) There is not enough information to determine the amount.

Question 7

Bond insurance protects the bond issuer and the bond buyers.

Question 8

A healthcare facility has a $100,000 line of credit from its bank. It regularly pays interest on the $100,000.

Question 9

A small medical facility is investing funds that will form an emergency reserve. Which of the following is the most appropriate order of importance ranking (most important first) for the investment's characteristics?

A) safety, liquidity, and yield
B) liquidity, yield, and safety
C) safety, yield, and liquidity
D) yield, liquidity, and safety

Question 10

A two-year investment $10,000 has an interest rate of 4% per year, compounded annually. What is the future value?

A) $800
B) $10,800
C) $10,816
D) $816

Question 11

A corporate bond underwriter ____.

A) buys the bonds at a slight discount
B) ensures that the bond issue gets the best possible credit rating
C) tries to obtain the highest interest rate possible
D) issues the bonds

Question 12

A chartered bank's certificate of deposit is ____.

A) a document showing how much was deposited into a bank account
B) generally issued in $5000 denominations
C) insured by the federal government if less than $100,000
D) a long term, high interest rate investment

Question 13

The Federal Deposit Insurance Corporation is an agency that insures deposits to commercial bank accounts made by corporations.

Question 14

The face amount of a bond is ____.

A) its interest rate
B) the amount a bond holder will receive in payment
C) the par value
D) its permanent resale value

Question 15

The Federal National Mortgage Association is ____.

A) a federal agency that directly lends money to home buyers
B) a government secured enterprise that buys mortgages and sells securities
C) a trade organization of national banks and mortgage lenders
D) a federal agency that regulates bank mortgages

Question 16

A for-profit healthcare corporation creates a bond issue that receives its credit rating from an agency of the state government where the healthcare business is incorporated.

Question 17

A large healthcare corporation borrows $50,000,000 to buy an existing facility. The loan has a variable interest rate pegged to LIBOR. At the end of this month, how can the corporate accountant determine what the interest payment will be?

A) He can look at the schedule of loan payments created when the loan was made.
B) He can calculate interest from the outstanding principal and the LIBOR value.
C) He must wait for the loan statement from the lending bank.
D) He can calculate the difference between the loan principal and the future value.

Question 18

A medical facility arranges a five-year $50,000 line of credit with its bank with a monthly interest rate of 0.4%. The facility borrowed $10,000 initially but paid that off six months later. Two more months have passed with no additional borrowing. What will the line of credit interest expense be for the most recent month?

A) $40
B) $200
C) $0
D) $80

Question 19

During stable financial times, investments that pay the highest interest rates are ____.

A) the best choice for non-profit healthcare facilities
B) the most likely to lose money for the investor
C) corporate stocks
D) long term mortgage securities

Question 20

Which of the following statements about a single payment loan is correct?

A) It typically is due in 2-10 years.
B) It typically has a variable interest rate tied to an index.
C) It cannot be repaid before the due date.
D) Its payment amount is known when the loan is approved.

Question 21

Which of the following factors will generally result in a higher rate of interest on an investment?

A) longer term
B) shorter term
C) lower risk
D) greater liquidity

Question 22

A financial instrument that represents financial ownership or a debt agreement is known as a(n) ____________________.

Question 23

A medical practice invests money in a five-year treasury note with a 3% interest rate. Three years later, the practice needs money and sells the note. Which of the following will most reduce the sale value of the treasury note?

A) Newly issued five-year treasury notes with 2% interest rates
B) Newly issued two-year treasury notes with 4.5% interest rates
C) A 1% increase in the prime rate
D) A 1% fall in the prime rate

Question 24

The amount of money one needs to invest to reach a target amount of money at a future date is known as the ____________________ of a single sum.

Question 25

When a large healthcare corporation wants to establish a relationship with a commercial bank, it prepares and sends a(n) _______________to commercial banks.

Question 26

Industrial Development Revenue Bonds ____.

A) can be issued by for-profit corporations
B) can be issued by municipalities as tax exempt bonds
C) pay taxable interest to bond holders
D) receive the credit rating of the issuing local government

Question 27

Define investment liquidity.

Question 28

A business has a lump sum of cash available for investment for two years. Describe how to use future value calculations to compare investment options that have different periods and different interest rates.

Question 29

A healthcare corporation that regularly makes substantial profits (and pays taxes on them) has money to invest for five years. The CFO is considering five year corporate or municipal bonds. What are the advantages and disadvantages of those options?

Question 30

The Rule of 72 ____.

A) is a requirement that corporate board members be at least 72 years old
B) was a federal law about hospital bonds passed in 1972
C) is a quick way to estimate doubling time for fixed interest investments
D) is a component of the generally accepted accounting principles

Question 31

The securities dealer who brings a bond to market is called the ____________________.

Question 32

A loan with a fixed rate of interest that will be repaid with regular payments over two or more years is called a(n) ____________________.

Question 33

Your healthcare facility is choosing a bank and has narrowed the selection to two banks. Bank A has lower checking account-related fees but higher interest charges for short term loans than Bank B. Both banks are equal in all other respects. What factors will affect the final choice of bank?

Question 34

The American Recovery and Reinvestment Act of 2009 ____.

A) allowed corporations to stretch out depreciation on capital assets
B) exempted healthcare corporation bonds from federal taxes on interest
C) provided funds for computerization of healthcare records
D) provided tax credits to for-profit hospitals that refurbished their buildings

Question 35

A medium-sized medical practice needs short term loans a few times per year when available cash is less than needed for operations. It can either take multiple single payment loans each year or arrange for a five-year line of credit. Discuss the pros and cons of those choices.