Ch13 Quiz

"A $100,000 T-bill currently sells for $98,600 and matures in 90 days. What is the 365 day basis yield for this investment? " A. 5.76% B. 5.68% C. 5.48% D. 5.37%

A. 5.76% (100000-98600)/98600 * (365/90)

Buying a security with the intent of selling it prior to its maturity date to increase the return is an example of: A. Active investment strategy B. Matching investment strategy C. An interest rate future D. A diversification program

A. Active investment strategy

Which of the following is a KEY operational advantage of short-term debt? A. It can be arranged quickly and easily B. It improves the current ratio for debt covenant and compliance purposes C. It reduces the risk of interest rate fluctuation and lowers interest expense D. It improves the overall liquidity position and reduces risk

A. It can be arranged quickly and easily

The treasurer of a corporation is negotiating with one of his/her suppliers to allow the corporation to have 30 days to pay the supplier s invoices. The treasurer is arranging: A. Short-term financing B. Revolving credit agreement C. Factoring of receivables D. Uncommitted line of credit

A. Short-term financing

Which of the following is true when a company purchases goods using trade credit from suppliers? A. The buyer incurs no added cost if it pays on time B. The supplier will charge interest to the buyer C. The buyer should record this as a long-term liability D. The supplier places a lien on the goods sold until payment

A. The buyer incurs no added cost if it pays on time

Which of the following is a source of short-term financing? A. Bond issuance B. Factoring of accounts receivable C. Issuance of common stock D. Retaining profits

B. Factoring of accounts receivable

"A $100,000 T-bill currently sells for $98,600 and matures in 90 days. What is the discount rate for this investment? " A. 5.51% B. 5.57% C. 5.60% D. 5.68%

C. 5.60% (100000-98600)/100000 * (360/90)

"Company A has $1,375,000 that it plans to invest for three years at an interest rate of 4%, with all interest paid at maturity. How much interest will the company receive at the end of the third year? " A. $16,566.09 B. $165,000 C. $55,000 D. $171,688"

D. $171,688

"Company S wants to issue $25,000,000 of commercial paper at a discount of 35 bps and a maturity of 27 days. The dealer fee is 10 bps annually and the bank assesses a backup L/C fee of 20 bps. What is the approximate annual interest rate the company pays for this issue of commercial paper? " A. 3.85% B. 2.48% C. 1.57% D. 0.66%

D. 0.66%

Company R has a $50 million line of credit with a 5% compensating balance. They have outstanding borrowings of $37 million. The fee on the unused portion of the line of credit is 25 bps and the interest rate on the borrowings is LIBOR of 28 bps plus 3.25%. What is the annual interest rate for the line of credit? A. 0.46% B. 3.64% C. 3.73% D. 3.81%

D. 3.81%