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FIN3702 Assignment 1 (COMPLETE ANSWERS) Semester 2 2024 (355803)- DUE 6 September 2024
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
; 100% TRUSTED Complete, trusted solutions and
explanations.
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%
1. Collateral for a loan secured under a floating inventory
lien:
A floating inventory lien allows a borrower to use inventory as
collateral, but the collateral can change as inventory is bought
and sold. In this context, the most appropriate collateral from
the options provided would be items that are part of inventory
or equipment used in production.
Appropriate collateral:
o Drill presses: These are used in manufacturing and
would be considered as inventory equipment.
Less appropriate collateral:
o Cars: Typically not part of inventory.
, o Paper clips: Too trivial and not typically used as
collateral.
o File cabinets: Generally not considered valuable
inventory.
So, the best answer is:
o Drill presses
2. Approximate annual interest rate on the commercial
paper issue:
To find the approximate annual interest rate, we can use the
formula for the yield on a discount basis:
Interest Rate=DiscountProceeds×365Days\text{Interest Rate}
= \frac{\text{Discount}}{\text{Proceeds}} \times \frac{365}{\
text{Days}}Interest Rate=ProceedsDiscount×Days365
o Discount = Face value - Proceeds
o Face value = R2,000,000
o Proceeds = R1,950,000
o Days = 90
Discount=R2,000,000−R1,950,000=R50,000\text{Discount} =
R2,000,000 - R1,950,000 =
R50,000Discount=R2,000,000−R1,950,000=R50,000
Interest Rate=R50,000R1,950,000×36590\text{Interest Rate} = \
frac{R50,000}{R1,950,000} \times \frac{365}
{90}Interest Rate=R1,950,000R50,000×90365
, Interest Rate=0.02561×4.0556≈0.1032 or 10.32%\text{Interest
Rate} = \frac{0.0256}{1} \times 4.0556 \approx 0.1032 \
text{ or } 10.32\%Interest Rate=10.0256
×4.0556≈0.1032 or 10.32%
The closest answer choice to this calculation is:
o 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 1%commitment fee on the
unused portion of the agreement. Based on this information,
the effective annual interest rate on theloan was … 1. 7.5% 2.
8.0% 3. 8.5% 4. 9.0% The major type of loan made by banks to
businesses is the … 1. fi xed-asset-based loan. 2. short-term
secured loan. 3. capital improvement loan. 4. short-term self-
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