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
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.
, Question 1
Which of the following is appropriate collateral for a loan secured under a floating
inventory lien?
A floating inventory lien is typically used for collateral that consists of inventory which is
constantly changing or fluctuating.
Correct Answer: 2. Paper clips
Floating liens are generally secured by inventory that fluctuates, such as supplies or
goods like paper clips.
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).
To determine the annual interest rate, use the following formula:
Interest Rate = [(Face Value - Sale Price) / Sale Price] × (365 / Days to Maturity)
Interest Rate = [(2,000,000 - 1,950,000) / 1,950,000] × ()
Interest Rate ≈ 0.02564 × 4.0556
Interest Rate ≈ 10.4%
Correct Answer: 2. 11%
Question 3
Lenders recognize that by having an interest in collateral, they can reduce losses if the
borrowing firm defaults…
Correct Answer: 1. and the presence of collateral reduces the risk of default.
Collateral serves as a safety net, reducing the lender’s risk.
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
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