Question 1

Your bank has agreed to grant you a discount loan with an APR of 4.25%.If you need $8,000 today,how large is the face value of the loan?

Accepted Answer

To calculate the face value of the loan, we need to use the formula: 
Face value = Loan amount / (1 - APR x Loan period)
Assuming the loan period is one year, we can plug in the given values:
Face value = $8,000 / (1 - 0.0425 x 1)
Face value = $8,355.03 (rounded to the nearest cent)
Therefore, the best choice is A, $8,355.

Question 2

Southern Communications will issue 30-year,semiannual bonds with an 8.0% coupon rate and a $1,000 par value.Bonds of similar risk and maturity are currently selling to yield 7.0% in the market place.What is the market price of one of the firm's new bonds? Use a financial calculator to determine your answer.

Accepted Answer

The market price of the bond is $1,124.72. This is calculated using the following formula:Bond Price = (C * (1 - (1 + r)^-n)) / r + (FV / (1 + r)^n)Where:C = coupon paymentr = yield to maturityn = number of periodsFV = face valueIn this case, the coupon payment is $40 (8% of $1,000), the yield to maturity is 7%, the number of periods is 60 (30 years * 2 semiannual periods per year), and the face value is $1,000. Plugging these values into the formula, we get:Bond Price = (40 * (1 - (1 + 0.07)^-60)) / 0.07 + (1000 / (1 + 0.07)^60)= $1,124.72

Question 3

You have agreed to a $30,000 fixed-rate loan from People's Bank today and promise to repay the loan with 24 equal monthly payments at an APR of 4.50%.What is the EAR of this loan?

Accepted Answer

The answer of You have agreed to a $30,000 fixed-rate...

Question 4

The ________ is the formal contract for the bond between the issuing company and the buyer.

Accepted Answer

An indenture is the formal contract between the issuing company and the buyer, outlining the terms and conditions of the bond. Debenture refers to a type of bond that is unsecured by collateral, sinking fund is a separate account set up by the issuer to retire a portion of the bond issue annually, and prospectus is a legal document that provides information about the security being offered for sale.

Question 5

You have agreed to a $50,000 fixed-rate loan from People's Bank today and promise to repay the loan with 48 equal monthly payments at an APR of 5.50%.How large are your monthly payments? Use a financial calculator to determine your answer.

Accepted Answer

Using a financial calculator, the monthly payment for a $50,000 loan at 5.50% APR for 48 months is $1,162.82. This is the correct answer. The other choices are not the correct monthly payments according to calculations.

Question 6

Bestor Bookkeeping has a $150,000 compensating balance loan with its bank.The terms of the loan call for Bestor to keep 8% of the loan as a compensating balance and pay interest at an annual rate of 7.50% on the entire amount.If the firm borrows the maximum amount for one year,how much interest is due at the end of the year?

Accepted Answer

The maximum amount Bestor can borrow is $150,000 / (1 - 0.08) = $163,043.48. 
The interest due at the end of the year is $163,043.48 x 0.075 = $12,227.61. 
However, since Bestor has to maintain a compensating balance of 8%, the actual amount of loan received is $150,000, and the interest due is $150,000 x 0.075 = $11,250. Thus, the correct answer is (B).

Question 7

Your bank has agreed to grant you a discount loan with an APR of 6.25%.If you need $10,000 today,the loan is to be repaid in full in one year,and the total interest to be paid is $667,what is the EAR of the loan?

Accepted Answer

The answer of Your bank has agreed to grant you...

Question 8

Your bank offers discount loans at a discount rate of 7.50%.If you borrowed $50,000 as a discount loan from the bank today at this rate (you receive less than the face value today and repay the face value in one year),how much money would you receive today? What is the EAR of this loan?

Accepted Answer

The answer of Your bank offers discount loans at a...

Question 9

Bestor Bookkeeping has a $150,000 compensating balance loan with its bank.The terms of the loan call for Bestor to keep 8% of the loan as a compensating balance and pay interest at an annual rate of 7.50% on the entire amount.If the firm borrows the maximum amount for one year,what is the EAR on this loan?

Accepted Answer

The answer of Bestor Bookkeeping has a $150,000 compensating balance...

Question 10

________ provides financial advice,helps design bond terms,makes sure that new bonds meet listing requirements,and then markets new bond issues.

Accepted Answer

An investment banker provides financial advice, helps design bond terms, makes sure that new bonds meet listing requirements, and then markets new bond issues. The Securities and Exchange Commission regulates the securities industry, the Federal Reserve is responsible for monetary policy, and a stock broker buys and sells securities on behalf of clients.

Question 11

A discount loan features a series of repayments to the bank.

Accepted Answer

A discount loan is a type of short-term loan in which the borrower receives the loan amount upfront but repays the loan at the end of the loan term in a single lump-sum payment that includes the principal, interest, and fees. There are no series of repayments to the bank.

Question 12

Bonds may be issued through either a ________ or a ________.

Accepted Answer

Bonds are typically issued through either a public auction, where they are offered to a large number of potential investors, or a private placement, where they are offered to a smaller group of investors. A private auction and state or federal agency are not commonly used methods for issuing bonds.

Question 13

A letter of credit or line of credit is a preapproved borrowing amount that works much like a ________.

Accepted Answer

A letter of credit or line of credit work much like a credit card where a preapproved borrowing amount is available to the borrower.

Question 14

With a line of credit,a company can borrow money at a preset rate from the bank at any time,without seeking additional approval of the loan each time funds are needed.

Accepted Answer

A line of credit allows a company to borrow money at a preset rate from the bank at any time without needing additional approval every time funds are required.

Question 15

Syndicated loans are generally reserved for large and mature businesses,and are for the long term rather than the short term.

Accepted Answer

Syndicated loans are typically used by large and established businesses for long-term financing needs.

Question 16

Syndicated loans are ________.

Accepted Answer

Syndicated loans involve multiple banks joining together to make a loan to a single company. This allows the banks to spread the risk and cost of the loan among themselves, while still providing the borrower with the necessary funds.

Question 17

________ is a government-authorized agency created to enforce the 1933 Securities Act.

Accepted Answer

The Securities and Exchange Commission (SEC) was created by the federal government in 1934 to enforce securities laws and regulations, including the 1933 Securities Act. The Federal Reserve System (FRS) is responsible for monetary policy, while the Federal Deposit Insurance Corporation (FDIC) insures deposits in banks and thrift institutions. There is no such agency as the Stock Exchange Commission (SEC).

Question 18

Citizens' Bank of Business commercial loans are currently posted as having an 8.50% APR,with monthly payments due over a three-year period.If your firm takes out a $25,000 loan,what is the monthly payment,and what is the EAR? Use a financial calculator to determine your answer.

Accepted Answer

The answer of Citizens' Bank of Business commercial loans are...

Question 19

The bond ________ contains much of the information filed in the bond registration and is used to inform potential buyers about the bond.

Accepted Answer

The prospectus is a legal document that provides information about an investment offering to potential buyers. It contains details about the bond offering, including its terms, interest rate, maturity date, and credit rating. The prospectus is intended to inform investors about the risks and potential rewards associated with the bond investment so they can make an informed decision.

Question 20

The bond indenture contains ALL BUT WHICH of the following?

Accepted Answer

The yield-to-maturity is not typically included in the bond indenture, as it is a calculated value based on the bond's price, coupon rate, and time to maturity. The indenture does contain the coupon rate, maturity date, and par value.

Quiz 15: Raising Capital