Chapter 08 – Sources of Short-Term Financing
76. Analog Computers needs to borrow $475,000 from the Midland Bank. The bank requires
a 15% compensating balance. How much money will Analog need to borrow in order to end
up with $475,000 spendable cash?
77. If Analog Computers can borrow at 8% for 3 years, what is the effective rate of interest on
a $1,000,000 loan where a 15% compensating balance is required?
Chapter 08 – Sources of Short-Term Financing
78. A term loan is usually characterized by
79. In determining the cost of bank financing, which is the important factor?
80. Mr. Jones borrows $4,500 for 90 days and pays $75 interest. What is his effective rate of
interest?
Chapter 08 – Sources of Short-Term Financing
81. Von Hayek’s Kayaks can borrow $12,500 for 60 days at a cost of $220 interest. What is
the effective rate of interest?
82. Kenneth’s Arrows and Bows borrow $15,000 for one year at 8 percent interest. What is
the effective rate of interest if the loan is discounted?
Chapter 08 – Sources of Short-Term Financing
83. East Coast Cleaners borrows $20,000 for 120 days and pays $400 interest. What is the
effective rate of interest if the loan is discounted?
84. Ms. Smith borrowed $2,000 at an 8% stated rate of interest and was to pay back the loan
in 24 monthly payments. What is her effective rate of interest?
Chapter 08 – Sources of Short-Term Financing
85. The required compensating balance is usually computed as a
86. Holland Construction Co. has an outstanding 180-day bank loan of $475,000 at an annual
interest rate of 7.5%. The company is required to maintain a 15% compensating balance in its
checking account. What is the effective interest rate on the loan? Assume the company would
not normally maintain this average amount.
Chapter 08 – Sources of Short-Term Financing
87. Koopman’s Chickens, Inc. plans to borrow $275,000 from its bank for one year. The rate
of interest is 9 percent, but a compensating balance of 20 percent is required. What is the
effective rate of interest?
88. Friedman Roses, Inc. needs $65,000 in funds for expansion. With a compensating balance
requirement of 20%, how much will the firm need to borrow?
Chapter 08 – Sources of Short-Term Financing
89. Commercial paper is very popular with many firms because
90. The Truth in Lending law is designed to protect
91. Commercial paper has which of the following advantages to the issuer?
Chapter 08 – Sources of Short-Term Financing
92. Which of the following is not a characteristic of commercial paper?
93. Commercial paper that is sold without going through a broker or dealer is known as
94. Commercial paper that is sold without the use of an actual paper certificate is known as
Chapter 08 – Sources of Short-Term Financing
95. Which of the following is not a true statement about commercial paper?
96. Multinational firms have found that they can lower borrowing costs
97. Accounts receivable may be used as a source of financing by
Chapter 08 – Sources of Short-Term Financing
98. Which of the following best describes the benefits to the borrower of selling asset backed
securities?
99. Which of the following is associated with the recession of 2007-2009?
100. The extent to which inventory financing may be used depends on
Chapter 08 – Sources of Short-Term Financing
101. Which of the following is not a method for lenders to control pledged inventory?
102. Which method of controlling pledged inventory provides the greatest degree of security
to the lender?
103. Which of the following is not a method for controlling pledged inventory?
Chapter 08 – Sources of Short-Term Financing
104. Hedging refers to
105. The financial futures market
106. Firms exposed to the risk of interest rate changes may reduce that risk by
Chapter 08 – Sources of Short-Term Financing
107. A firm has invested in corporate bonds; it may engage in a financial futures contract in
order to protect itself from
108. The effective rate on a loan with a 7% stated rate and 15% compensating balance is