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FIN3702 Assignment 1 (COMPLETE ANSWERS) Semester 2 2024 (355803)- DUE 6 September 2024
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FIN3702 Assignment 1(COMPLETE ANSWERS)
Semester 2 2024 (355803)- DUE 6
September 2024
CONTACT: biwottcornelius@gmail.com
,FIN3702 Assignment 1 (COMPLETE ANSWERS)
Semester 2 2024 (355803)- DUE 6 September 2024
Question 1 Not yet answered Marked out of 1.00 Question
2 Not yet answered Marked out of 1.00 QUIZ Which of the
following is appropriate collateral for a loan secured
under a fl oating inventory lien? 1. Cars 2. Paper clips 3.
Drill presses 4. File cabinets A fi rm has issued R2 million
worth of commercial paper that has a 90-day maturity
and sells for R1 950 000. The approximateannual interest
rate on the issue of commercial paper is … (assume 365
days in a year). 1. 5% 2. 11% 3. 21% 4. 23%
For the first question:
Which of the following is appropriate collateral for a loan secured under a floating
inventory lien?
1. Cars
2. Paper clips
3. Drill presses
4. File cabinets
Answer: 1. Cars
Explanation: A floating inventory lien is typically used to secure loans using inventory that is
subject to frequent changes. Cars are more likely to be considered movable assets that fit within
this type of collateral category, especially in industries like dealerships.
For the second question:
A firm has issued R2 million worth of commercial paper that has a 90-day maturity and
sells for R1,950,000. The approximate annual interest rate on the issue of commercial
paper is … (assume 365 days in a year).
1. 5%
2. 11%
3. 21%
4. 23%
Solution:
, The formula for calculating the interest rate on commercial paper is:
Interest Rate=(Face Value−Selling PriceSelling Price)×(365Days to Maturity)×100\text{Interest
Rate} = \left( \frac{\text{Face Value} - \text{Selling Price}}{\text{Selling Price}} \right) \
times \left( \frac{365}{\text{Days to Maturity}} \right) \times
100Interest Rate=(Selling PriceFace Value−Selling Price)×(Days to Maturity365)×100
Substituting the values:
Interest Rate=(2,000,000−1,950,0001,950,000)×(36590)×100\text{Interest Rate} = \left( \
frac{2,000,000 - 1,950,000}{1,950,000} \right) \times \left( \frac{365}{90} \right) \times
100Interest Rate=(1,950,0002,000,000−1,950,000)×(90365)×100
Interest Rate=(50,0001,950,000)×4.0556×100\text{Interest Rate} = \left( \frac{50,000}
{1,950,000} \right) \times 4.0556 \times 100Interest Rate=(1,950,00050,000)×4.0556×100
Interest Rate=0.0256×4.0556×100\text{Interest Rate} = 0.0256 \times 4.0556 \times
100Interest Rate=0.0256×4.0556×100 Interest Rate≈10.38%\text{Interest Rate} ≈
10.38\%Interest Rate≈10.38%
The closest option is 2. 11%.
Answer: 2. 11%
Question 3 Not yet answered Marked out of 1.00 Question
4 Not yet answered Marked out of 1.00 Question 5 Not
yet answered Marked out of 1.00 Lenders recognize that
by having an interest in collateral they can reduce losses
if the borrowing fi rm defaults, … 1. and the presence of
collateral reduces the risk of default. 2. but the presence
of collateral has no impact on the risk of default. 3.
therefore, lenders prefer to lend to customers from whom
they are able to require collateral. 4. therefore, lenders
will impose a higher interest rate on unsecured short-
term borrowing. A Taijikwan Mining fi rm borrowed
R100,000 for one year under a revolving credit
agreement that authorized and guaranteedthe fi rm
access to R200,000. The revolving credit agreement had
a stated interest rate of 7.5% and charged the fi rm a
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