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Working Capital Management

Multiple Choice
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Working Capital Management
Multiple Choice

1 .       Which of the following are advantages of commercial paper? [Hint]

  Large minimum balance requirements
  Lower interest rates than bank loans
  Multiple sources for short-term financing
  All of the above


2 .       Which of the following are examples of unsecured short-term credit provided by commercial banks? [Hint]

  Line of credit
  Revolving credit
  Transaction Loans
  All of the above


3 .       Which of the following types of loans (that most people associate with bank credit) is obtained by signing a promissory note and is made for a specific purpose? [Hint]

  Line of credit
  Transaction loan
  Revolving credit
  Commercial paper


4 .       A short-term promise to pay that is sold in the market for short-term debt securities is called: [Hint]

  Line of credit
  Transaction loan
  Revolving credit
  Commercial paper


5 .       Calculate the effective rate of passing up a 3/10 net 60 discount. Use 360 days in your calculations. [Hint]

  22.268%
  29.82%
  32.46%
  36.78%


6 .       Which of the following are disadvantages of current liabilities or short-term debt? [Hint]

  Short-term debt must be repaid or rolled over more often.
  Fluctuation or uncertainty of interest costs.
  Both A and B are disadvantages of short-term debt.
  None of the above


7 .       Calculate the interest payment on a 3-month loan for $1000 at 6% interest. [Hint]

  15
  60
  30
  120


8 .       What is the APR for a $1000 note held for 9 months which carried a $60 interest payment? [Hint]

  6%
  10%
  5%
  8%


9 .       The interest rate that considers the effect of compounding is called: [Hint]

  Annual Percentage rate
  Annual Percentage yield
  Interest Expense
  None of the above


10 .       The loan type that involves the pledge of specific assets as collateral in the event of default is called: [Hint]

  Permanent Loan
  Unsecured Loan
  Secured Loan
  None of the above



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