Reference no: EM13969838

1. Marine Booksellers plans to borrow $2 million for one year at a stated interest rate of 8.00%. The company can either pay quarterly installments to retire the loan or accept a discounted interest loan. Which option should it choose?

Select one:

A. The installment loan, since its effective annual rate of interest is lower.
B. The discounted loan, since its effective annual rate of interest is lower.
C. Either loan, since both effective annual rates of interest are identical.
D. There is not enough information provided to determine effective annual interest rates for both loans.

2. Analog Computers, Inc. will be borrowing $800,000 for one year from the Midland Bank. The bank will discount the loan and require a 15% compensating balance. Analog Computers, Inc. has been offered a nominal interest rate of 9.50%. What is the firm's effective annual rate of interest for this loan?

Select one:

A. 9.50%
B. 10.50%
C. 11.18%
D. 12.58%

3. Holland Construction Co. has an outstanding 180-day bank loan of $400,000 at an annual interest rate of 9.5%. The company is required to maintain a 15% compensating balance in its checking account. What is the effective interest rate for this loan?

Select one:

A. 11.18%
B. 19.00%
C. 22.35%
D. 8.08%

4. Nighthawk Lighting Company borrows $300,000 for one year at 7.00% interest. The loan is a discounted loan and also requires a compensating balance of 5%. What is the effective annual rate of interest on this loan?

Select one:

A. 7.00%
B. 7.37%
C. 7.53%
D. 7.96%

5. Koopman's Chickens, Inc. plans to borrow $300,000 from its bank for one year. The rate of interest is 10 percent, but a compensating balance of 15 percent is required. What is the effective rate of interest?

Select one:

A. 10.11%
B. 11.76%
C. 13.33%
D. 14.12

6. If Analog computers can borrow at 9.5% for 1 year, what is the effective rate of interest on a $800,000 loan where a 15% compensating balance is required?

Select one:

A. 11.18%
B. 17.27%
C. 9.50%
D. none of the above

7. The cost of failing to take the discount on trade credit of 3/10, net 35 is equal to:

Select one:

A. 44.54%
B. 39.23%
C. 31.81%
D. 23.31%

8. The cost of not taking the discount on trade credit of 2/20, net 60 is equal to

Select one:

A. 18.36%
B. 16.32%
C. 18.00%
D. 17.41%

9. Using the maturity-matching principle, which of the following types of assets should be financed with long-term financing?

Select one:

A. Fixed assets only
B. Fixed assets and temporary current assets
C. Fixed assets and permanent current assets
D. Temporary and permanent current assets