Question 1

Brown Trucking is buying a U.S.Treasury bill today with the understanding that the seller will buy it back tomorrow at a slightly higher price.This investment is known as a:

Accepted Answer

A)  commercial paper transaction.
B)  repurchase agreement.
C)  private certificate of deposit.
D)  revenue anticipation note.
E)  bill anticipation note.F) A) and E)
G) A) and D)

Question 2

Which one of the following statements is correct?

Accepted Answer

A)  The money market refers to securities that mature in two years or less.
B)  Banks are prohibited from investing cash surpluses on behalf of their customers on a short- term basis.
C)  Short-term securities tend to have a high degree of interest rate risk.
D)  A cyclical firm may purchase marketable securities as part of its short-term financing plan.
E)  Corporations are not permitted to invest in money market mutual funds but can invest in bank money market accounts.F) B) and E)
G) A) and B)

Question 3

Why do firms need liquidity?
I.to meet compensating balance requirements
II.to take advantage of an opportunity that suddenly arises
III.to conduct daily business activities
IV.to be prepared for a financial emergency

Accepted Answer

A)  I and II only
B)  III and IV only
C)  I, III, and IV only
D)  II, III, and IV only
E)  I, II, III, and IVF) A) and E)
G) C) and D)

Question 4

A mail-order firm processes 5,000 checks per month.Of these, 55 percent are for $55 and 45 percent are for $65.The $55 checks are delayed 2 days on average; the $65 checks are delayed 5 days on average.Assume each month has 30 days.The interest rate is 6 percent per year.How much should the firm be willing to pay to reduce the weighted average float by 1.4 days?

Accepted Answer

A)  $4,165
B)  $13,883
C)  $41,650
D)  $138,883
E)  $416,500F) A) and D)
G) A) and E)

Question 5

Money market securities have which of the following characteristics?
I.long maturities
II.low default risk
III.high degree of liquidity
IV.low rates of return

Accepted Answer

A)  I and III only
B)  II and III only
C)  I and IV only
D)  II, III, and IV only
E)  I, II, III, and IVF) B) and E)
G) D) and E)

Question 6

Adjustment costs is another name for which one of the following?

Accepted Answer

A)  borrowing costs
B)  shortage costs
C)  cash transfer costs
D)  cash wire costs
E)  excess cash costsF) C) and D)
G) A) and B)

Question 7

Which one of the following statements is correct?

Accepted Answer

A)  Net float decreases every time a firm issues a check to pay one of its suppliers.
B)  A positive net float indicates that collection float exceeds disbursements float.
C)  Firms prefer a zero net float over a positive net float.
D)  Net float is equal to collection float minus disbursement float.
E)  Net float is equal to a firm's available balance minus its book balance.F) All of the above
G) A) and B)

Question 8

Travel Inn Express spends $109,000 a week to pay bills and maintains a lower cash balance limit of $125,000.The standard deviation of the disbursements is $14,400.The applicable weekly interest rate is 0.039 percent and the fixed cost of transferring funds is $58.What is the inn's cash balance target based on the Miller-Orr model?

Accepted Answer

A)  $28,492
B)  $31,359
C)  $153,492
D)  $156,359
E)  $225,417F) B) and E)
G) B) and D)

Question 9

Penco Supply spends $325,000 a week to pay bills and maintains a lower cash balance limit of $75,000.The standard deviation of its disbursements is $18,900.The applicable interest rate is 5 percent and the fixed cost of transferring funds is $65.What is the firm's optimal initial cash balance based on the BAT model?

Accepted Answer

A)  $150,600
B)  $158,929
C)  $170,096
D)  $221,506
E)  $209,619F) C) and D)
G) C) and E)

Question 10

On average, your firm receives 65 checks a day from customers.These checks, on average, are worth $39.90 each and clear the bank in 1.5 days.In addition, your firm disburses 38 checks a day with an average amount of $89.50.These checks clear your bank in 2 days.What is the average amount of the collection float?

Accepted Answer

A)  $2,473.80
B)  $3,401.00
C)  $3,890.25
D)  $5,101.50
E)  $6,802.00F) A) and E)
G) A) and B)

Question 11

Your firm spends $346,000 a week to pay bills and maintains a lower cash balance limit of $150,000.The standard deviation of your disbursements is $28,700.The applicable interest rate is 5 percent and the fixed cost of transferring funds is $60.What is your optimal average cash balance based on the BAT model?

Accepted Answer

A)  $103,900
B)  $146,500
C)  $182,200
D)  $207,800
E)  $249,900F) B) and E)
G) D) and E)

Question 12

Yesterday, the president of RB Enterprises received a phone call from DLK, a competitor.DLK is a sole proprietorship.An unexpected family situation has caused the owner to suddenly want to retire and relocate closer to his family.Thus, the assets of DLK are being offered to RB Enterprises at a bargain basement price.While RB Enterprises had not anticipated purchasing these assets, it was decided that the opportunity was too good to pass up.This illustrates which of the following needs to hold cash?

Accepted Answer

A)  precautionary
B)  transaction
C)  speculative
D)  compensation
E)  floatF) All of the above
G) D) and E)

Question 13

A money market preferred stock:

Accepted Answer

A)  has a floating dividend.
B)  is sold only under a repurchase agreement.
C)  is a special form of commercial paper.
D)  has more price volatility than an ordinary preferred.
E)  has its interest rate reset daily.F) A) and B)
G) All of the above

Question 14

The Blue Star generally receives only 3 checks a month.The check amounts and the collection delay for each check are shown below.Given this information, what is the amount of the average daily float? Assume every month has 30 days.

Accepted Answer

A)  $971.43
B)  $1,376.67
C)  $3,351.33
D)  $5,666.67
E)  $6,800.00F) All of the above
G) A) and B)

Question 15

An account into which a firm transfers funds, usually from a master account, in an amount sufficient to cover the checks presented for payment that day is called a _____ account.

Accepted Answer

A)  lockbox
B)  cleanup
C)  compensating balance
D)  revolving
E)  controlled disbursementF) D) and E)
G) B) and C)

Question 16

Your firm spends $54,000 a week to pay bills and maintains a lower cash balance limit of $45,000.The standard deviation of your disbursements is $12,100.The applicable interest rate is 4.5 percent and the fixed cost of transferring funds is $55.What is your opportunity cost of holding cash based on the BAT model?

Accepted Answer

A)  $1,318
B)  $1,864
C)  $2,204
D)  $2,311E) A) and B)
F) All of the above

Question 17

On an average day, Wilson & Wilson receives $7,800 in checks from customers.These checks clear the bank in an average of 1.7 days.The applicable daily interest rate is 0.022 percent.What is the highest daily fee this firm should pay to completely eliminate its collection float? Assume each month has 30 days.

Accepted Answer

A)  $1.72
B)  $2.92
C)  $17.20
D)  $24.30
E)  $29.17F) All of the above
G) D) and E)

Question 18

Check kiting is:

Accepted Answer

A)  used by most firms as an ethical means of handling its cash reserves.
B)  the process of withdrawing all funds from a bank account as soon as the funds are available.
C)  the central core of a good cash management system.
D)  using uncollected cash to invest in short-term, liquid assets.
E)  increasingly popular due to recent banking law changes.F) C) and D)
G) A) and C)

Question 19

Parkway Express needs $318,000 a week to pay bills.The standard deviation of the weekly disbursements is $31,000.The firm has established a lower cash balance limit of $60,000.The applicable interest rate is 4.5 percent and the fixed cost of transferring funds is $65.Based on the BAT model, what is the opportunity cost of holding cash?

Accepted Answer

A)  $3,873
B)  $4,918
C)  $5,207
D)  $109,283
E)  $110,440F) A) and C)
G) None of the above

Question 20

On an average day, Goose Down Feathers receives $2,400 in checks from customers.These checks clear the bank in an average of 2.2 days.The applicable daily interest rate is 0.04 percent.What is the present value of the float? Assume each month has 30 days.

Accepted Answer

A)  $115.20
B)  $618.40
C)  $4,080.00
D)  $5,280.00
E)  $6,256.50F) B) and C)
G) C) and E)

Exam 19: Behavioural Finance

The Blue Star generally receives only 3 checks a month.The check amounts and the collection delay for each check are shown below.Given this information, what is the amount of the average daily float? Assume every month has 30 days.

Correct Answer
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Correct Answer
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Check kiting is:

Correct Answer
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Brown Trucking is buying a U.S.Treasury bill today with the understanding that the seller will buy it back tomorrow at a slightly higher price.This investment is known as a:

Correct Answer
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Correct Answer
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Why do firms need liquidity? I.to meet compensating balance requirements II.to take advantage of an opportunity that suddenly arises III.to conduct daily business activities IV.to be prepared for a financial emergency

Correct Answer
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An account into which a firm transfers funds, usually from a master account, in an amount sufficient to cover the checks presented for payment that day is called a _____ account.

Correct Answer
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Correct Answer
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A money market preferred stock:

Correct Answer
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Money market securities have which of the following characteristics? I.long maturities II.low default risk III.high degree of liquidity IV.low rates of return

Correct Answer
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Correct Answer
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On an average day, Goose Down Feathers receives $2,400 in checks from customers.These checks clear the bank in an average of 2.2 days.The applicable daily interest rate is 0.04 percent.What is the present value of the float? Assume each month has 30 days.

Correct Answer
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Which one of the following statements is correct?

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Which one of the following statements is correct?

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Adjustment costs is another name for which one of the following?

Correct Answer
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Exam 19: Behavioural Finance

The Blue Star generally receives only 3 checks a month.The check amounts and the collection delay for each check are shown below.Given this information, what is the amount of the average daily float? Assume every month has 30 days.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Check kiting is:

Correct AnswerverifiedShow Answer

Brown Trucking is buying a U.S.Treasury bill today with the understanding that the seller will buy it back tomorrow at a slightly higher price.This investment is known as a:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Why do firms need liquidity? I.to meet compensating balance requirements II.to take advantage of an opportunity that suddenly arises III.to conduct daily business activities IV.to be prepared for a financial emergency

Correct AnswerverifiedShow Answer

An account into which a firm transfers funds, usually from a master account, in an amount sufficient to cover the checks presented for payment that day is called a _____ account.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A money market preferred stock:

Correct AnswerverifiedShow Answer

Money market securities have which of the following characteristics? I.long maturities II.low default risk III.high degree of liquidity IV.low rates of return

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

On an average day, Goose Down Feathers receives $2,400 in checks from customers.These checks clear the bank in an average of 2.2 days.The applicable daily interest rate is 0.04 percent.What is the present value of the float? Assume each month has 30 days.

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

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Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

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Correct AnswerverifiedShow Answer

Adjustment costs is another name for which one of the following?

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