FIN420 Exam2 Multi

What is the annual interest rate for a one-year line of credit that has an average loan outstanding of $750,000, a commitment of $2,000,000, a commitment fee of 20 basis points on the unused portion of the line, a non-compensating balance requirement and an interest rate of 11%? 11.59% 11.23% 12.87% 11.33%

11.33%

What is the holding period yield for a $100,000 T-bill that was purchased for $96,500 and matures in 120 days? 3.96% 3.83% 3.63% 3.5%

3.63%

What type of commercial paper (CP) must be issued for at least $250,000, has a maximum maturity of 397 days, and has no restrictions on how the proceeds may be used? 4(2) Interest-bearing CP 3(a)3 365-day basis CP

365-day basis CP

What is the discount rate on a $100,000 182-day T-bill sold for $96,982? 3.16% 5.97% 3.11% 6.05%

5.97%

On the issuance date, a company purchased a 90-day $100,000 Treasury bill selling at 7.20%. What is the bond equivalent yield (BEY)? 7.13% 7.42% 7.21% 7.75%

7.42%

Which of the following is true of the assumptions made when determining the basic components of interest rates? A US treasury security incorporates only the real-risk free rate and no other premiums US Treasury securities have no default risk but could have some liquidity risk A municipal security issued by a US state always includes some premium for both default and liquidity risk The maturity premium is the sole component of increased premiums as otherwise identical securities increase in maturity

A municipal security issued by a US state always includes some premium for both default and liquidity risk

Which of the following investment strategies is (are) based on expectations regarding the direction of interest rates? Overnight investing Tax-based strategy (e.g., dividend capture) Active investment strategy (total-return strategy) Buy and hold to maturity strategy (matching)

Active investment strategy (total-return strategy)

Which of the following is NOT a basic component in the cost for a line of credit? Compensating balances Backup credit cost All-in rate of interest Commitment fees

Backup credit cost

What is the BEST choice for an organization if the added cost of multiple portfolio managers is likely to exceed the expected value of comparing managers and then reallocating the portfolio to the better managers? Never use more than one portfolio manager Avoid using managers and instead only use index funds Compare the managers against industry indices Invest in the study despite the lack of clear cost benefit

Compare the managers against industry indices

An organization's investment reporting should clearly illustrate the composition of a portfolio according to all of the following EXCEPT: security classes. holding prices. maturity distribution. quality ratings.

Holding Prices

Board approved investment policy should include which of the following? I. Maximum weighted average duration for the portfolio II. Minimum maturity for individual securities III. Guidelines for investing in foreign securities IV. Sole responsibility for implementing the policy assigned to one individual V. Guidance for classification of investments in accordance with Securities and Exchange Commission (SEC) rules I, II and III only II, IV and V only III and V only I and III only

I and III only

An actively managed portfolio strategy requires that an investment manager do which of the following? I. Be prepared to sell holdings when prices rise II. Be prepared to sell holdings when prices fall III. Invest cash that is required sooner than the shortest maturity security purchased IV. Forecast the course of interest rates over the very short term II and IV only I and IV only I, III and IV only II, III and IV only

I and IV only

A cash manager wants to select the best securities for short-term investments. Rank the following investments from the most secure to the least secure, taking into account that some ratings are from Moody's ratings and some are from Standard and Poor's ratings. I. Commercial paper A, rated Prime-3 II. Commercial paper B, rated A-2 III. Commercial paper C, rated Not Prime IV. Commercial paper D, rated A-1+ III, IV, II, I IV, II, I, III IV, I, II, III II, IV, I, III

IV, II, I, III

When preparing cash forecasts, a treasury professional takes which of the following steps? Select all that apply. Identify how to cover any cash deficits or use any cash surpluses Sum available balances in the company's bank accounts Estimate future cash inflows and outflows Adjust available balances by the day's anticipated cash inflows and outflows Generate a pro forma cash position

Identify how to cover any cash deficits or use any cash surpluses Estimate future cash inflows and outflows Generate a pro forma cash position

An inverted yield curve can result from which of the following causes? Investors shifting their preference to short-maturity instruments Issuers are shifting their preference to short-term borrowing Investors demanding a yield premium to compensate for investments that have lower liquidity Reduced demand for long-term securities

Issuers are shifting their preference to short-term borrowing

A bank credit line provides a firm with which of the following? Select all that apply. Reverse repurchase agreement Liquidity cushion Seasonal short-term financing source Required commercial paper backup credit

Liquidity cushion Seasonal short-term financing source Required commercial paper backup credit

Which of the following yield quoting conventions enable the comparison of alternative investments that are quoted and priced differently? Select all that apply. Money market yield Holding period yield Nominal yield Bond equivalent yield

Money market yield Bond equivalent yield

Which of the following will a rating agency or NRSRO NOT do? Provide an investment recommendation Use confidential, non-public information when making rating decisions Provide greater disclosure of their rating models Provide an opinion on the obligor's overall capacity to meet its financial obligations

Provide an investment recommendation

A company has a one-year line of credit that allows them to borrow from, repay and reborrow at will, requires the backing of collateral and can be cancelled at any time by the lender. Which of the following features does this line of credit possess? Select all that apply. Revolving Unsecured Secured Uncommitted Committed

Revolving Unsecured Secured Uncommitted

When should a security holding be considered impaired and a write-down be taken? When the market value is less than its historical cost When the IASB or FASB requirements indicate these steps are needed When the market value is less than its adjusted cost When the organization's valuation and impairment policies indicate to do so

When the organization's valuation and impairment policies indicate to do so

Which of the following is true of a revolving credit agreement (revolver)? Revolvers rarely include covenants or commitment fees on the unused portion Revolvers can be carried as long-term liabilities on the balance sheet Revolvers frequently identify a specific cash flow event as the repayment source Revolvers have all the characteristics of an uncommitted line of credit

aRevolvers can be carried as long-term liabilities on the balance sheet

A receipts schedule for a receipts and disbursements forecast should include all of the following in its projections EXCEPT customer payments on accounts receivable. proceeds from an expected, one-time asset sale. cash to be received from a new bank loan. interest and dividends to be received from investments.

cash to be received from a new bank loan.

Data relationships for use in forecasting can be determined in all of the following ways EXCEPT found via statistical procedures. compiled via in-sample validation. estimated by graphing data. judged by a treasury professional with experience in historical relationships.

compiled via in-sample validation.

Pricing for lines of credit may include all of the following components EXCEPT dealer fee. all-in rate. compensating balances. commitment fee.

dealer fee.

All of the following are related to short-term financing EXCEPT it is structured to find alternate liquidity sources such as trade credit or internal borrowing. it is used to finance current assets such as accounts receivable and inventory. it is discussed in terms of target capital structure. it is concerned with lowering the cost of interest.

it is discussed in terms of target capital structure.

All of the following can cause periods of economic distress in a company that relies heavily on short-term variable-rate borrowing and on issuing commercial paper EXCEPT lender's loosening of credit standards. increases in short-term interest rates. a company's credit quality may decline. inability to roll over the commercial paper due to the general economic condition.

lender's loosening of credit standards.

An organization contracts with an outside investment bank to manage its short-term investment portfolio and provide securities custody services. This relationship typically entails significant fees for the custody services. requires the investment manager to trade through a custodian. is a reliable method of enforcing separation of duties. may create an unacceptable fraud risk.

may create an unacceptable fraud risk.

All of the following are primary operational advantages of short-term financing EXCEPT: more efficient seasonal credit financing. reduced risk for permanent asset financing. greater flexibility fewer restrictions.

reduced risk for permanent asset financing.