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FIN3702 Assignment 1 (COMPLETE ANSWERS) Semester 2 2024 (355803)- DUE 6 September 2024 1 review
FIN3702 Assignment 1 (COMPLETE ANSWERS) Semester 2 2024 (355803)- DUE 6 September 2024 1 review
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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%
Appropriate Collateral for a Loan Secured Under a Floating
Inventory Lien
A floating inventory lien allows a borrower to use inventory as
collateral, but the lender's claim on the inventory is not fixed;
it "floats" with the changes in the inventory. The collateral
should be something that can be easily inventoried and used
in the firm’s operations.
Among the given options:
Cars: These are fixed assets, not inventory.
Paper clips: These are low-value, consumable inventory
items.
, Drill presses: These are equipment or machinery, not
typically considered inventory.
File cabinets: These are fixed assets, not inventory.
The most appropriate collateral under a floating inventory lien
would be something like paper clips, as they represent
inventory rather than fixed assets.
Answer: 2. Paper clips
Approximate Annual Interest Rate on the Issue of
Commercial Paper
To find the approximate annual interest rate, we first calculate
the discount and then annualize it.
Face value: R2,000,000
Selling price: R1,950,000
Discount amount: R2,000,000 - R1,950,000 = R50,000
Discount rate: R50,000 / R2,000,000 = 0.025 or 2.5% (for
90 days)
To annualize this rate, multiply by the number of periods in a
year (365/90):
Annualized discount rate: 2.5% × (365/90) ≈ 10.2%
Hence, the approximate annual interest rate is closest to 11%.
Answer: 2. 11%
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