TM - Chapter 13 Quiz

Which of the following is a KEY operational advantage of short-term debt?

it can be arranged quickly and easily

A $100,000 T-bill currently sells for $98,600 and matures in 90 days. What is the discount rate for this investment?

5.60%

Which of the following is true when a company purchases goods using trade credit from suppliers?

The buyer incurs no added cost if it pays on time

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?

$171,688 calculator(calc FV): n = 3 I/Y = 4 PV = $1,375,000 PMT = 0 FV = ???? $1,546,688 $1,546,688 - $1,375,000 = $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?

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?

3.81%

"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? "

5.76%

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:

short-term financing

Buying a security with the intent of selling it prior to its maturity date to increase the return is an example of:

active investment strategy

Which of the following is a source of short-term financing?

factoring of accounts receivable