Exam (elaborations)
FIN3702 Assignment 1 (COMPLETE ANSWERS) Semester 2 2024 (355803)- DUE 6 September 2024
- Course
- Working Capital Management
- Institution
- University Of South Africa
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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% Question 3
Not yet answered Marked out of 1.00
Question 1:
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: The correct answer is 2. Paper clips.
Explanation: A floating inventory lien is a type of security interest in inventory that allows the
borrower to continue using or selling the inventory in the normal course of business. Paper clips
are more likely to be part of the inventory that turns over regularly, making them appropriate
collateral under a floating inventory lien. Other items like cars, drill presses, or file cabinets are
not typically considered inventory and are more suited as fixed assets.
Question 2:
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%
Step-by-step calculation:
1. Interest Amount: R2,000,000 - R1,950,000 = R50,000.
2. Interest Rate for 90 days: Interest Rate=50,0001,950,000×100=2.5641%\text{Interest
Rate} = \frac{50,000}{1,950,000} \times 100 = 2.5641\%Interest Rate=1,950,00050,000
×100=2.5641%.
3. Annual Interest Rate: 2.5641%×36590=10.4%2.5641\% \times \frac{365}{90} =
10.4\%2.5641%×90365=10.4%.
Answer: The correct answer is 2. 11%.
Explanation: The calculated approximate annual interest rate is closest to 11%.
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-
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