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BFF9140: Bank Lending DRAFT EXAM SOLUTIONS Section A: (10 x 1.5 mark = 15 marks) Question 1: The amount of current assets required to meet a firm’s long-term minimum needs is referred to as ____________ working capital A permanent B temporary C net D gross Question 2: This material is no longer taught in BFF5914 Question 3: This material is no longer taught in BFF5914 Question 4: A tenant offers to sign a lease paying a rent of $1,000 per month, in advance (i.e., the rent will be paid at the beginning of each month), for five years. At 10% nominal annual interest compounded monthly, what is the present value of this lease? A $45,000 B $46,587 C $47,013 D $47,458 Question 5: What is the present value of an offer of $14,000 one year from now if the opportunity cost of capital (discount rate) is 11% per year nominal annual rate compounded monthly? A $10,587.68 B $11,546.00 C $12,548.18D $13,564.24 Question 6: Loan repayments are apportioned to a number of components. These are: A principal and interest B principal, interest, fees and charges C principal, interest, fees, charges and lender’s mortgage interest D principal, interest, fees, charges, lender’s mortgage interest and building insurance Question 7: How can a firm provide a margin of safety if it cannot borrow on short notice to meet its needs? A Maintain a low level of current assets (especially cash and marketable securities)
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