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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
100% GUARANTEED
,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 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-liquidating loan.
Let's go through each question:
Question 1: Which of the following is appropriate collateral for a loan secured under a floating
inventory lien?
Answer: 2. Paper clips
o Explanation: A floating inventory lien is a type of loan secured by the borrower's
inventory. It allows the inventory to be sold, with the lien attaching to the
proceeds. Paper clips would fit the category of inventory that is continually sold
and replenished, whereas cars, drill presses, and file cabinets are more likely to be
considered fixed assets rather than inventory.
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).
Answer: To calculate the interest rate:
Interest=Face Value−Selling PriceSelling Price×365Days to Maturity×100\text{Interest}
= \frac{\text{Face Value} - \text{Selling Price}}{\text{Selling Price}} \times \frac{365}
{\text{Days to Maturity}} \times 100Interest=Selling PriceFace Value−Selling Price
×Days to Maturity365×100
Interest=2,000,000−1,950,0001,950,000×36590×100=0.02564×4.06×100=10.42%\
text{Interest} = \frac{2,000,000 - 1,950,000}{1,950,000} \times \frac{365}{90} \times
100 = 0.02564 \times 4.06 \times 100 = 10.42\%Interest=1,950,0002,000,000−1,950,000
×90365×100=0.02564×4.06×100=10.42%
o Answer: 2. 11% (rounded to the nearest percentage)
Question 3: Lenders recognize that by having an interest in collateral they can reduce losses if
the borrowing firm defaults...
Answer: 3. therefore, lenders prefer to lend to customers from whom they are able to
require collateral.
o Explanation: Collateral reduces the lender's risk of loss if the borrower defaults,
so lenders are more likely to lend to customers who can provide collateral.
Question 4: A Taijikwan Mining firm borrowed R100,000 for one year under a revolving credit
agreement that authorized and guaranteed the firm access to R200,000. The revolving credit
agreement had a stated interest rate of 7.5% and charged the firm a 1% commitment fee on the
unused portion of the agreement. Based on this information, the effective annual interest rate on
the loan was...
Answer: 3. 8.5%
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