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Free CMA Exam Braindumps (page: 197)

Page 197 of 336
PDF with 1336 Questions
View Related Case Study

Which one of the following is not a characteristic of a negotiable certificate of deposit? Negotiable certificates of deposit

  1. Have a secondary market for investors.
  2. Are regulated by the Federal Reserve System.
  3. Are usually sold in denominations of a minimum of $100,000.
  4. Have yields considerably greater than bankers' acceptances and commercial paper.

Answer(s): D

Explanation:

A certificate of deposit (CD) is a form of savings deposit that cannot be withdrawn before maturity without incurring a high penalty. A negotiable CD can be traded. CDs usually have a fairly high rate of return compared with other savings instruments because they are for fixed, usually long-term periods. However, theiryield is less than that of commercial paper and bankers' acceptances because they are less risky.



View Related Case Study

A firm has daily cash receipts of $300,000. A bank has offered to provide lockbox service that will reduce the collection time by 3 days. The bank requires a monthly fee of $2,000 for providing this service. If money market rates are expected to average 6% during the year, the additional annual income (loss) of using the lockbox service is

  1. ($24,000)
  2. $12,000
  3. $30000
  4. $54000

Answer(s): C

Explanation:

Because collections will be accelerated by 3 days at a rate of $300,000 per day, the company will have an additional $900,000 to invest. Ata rate of 6%, the interest earned will be $54,000 per year. However, the bank will charge $24,000 (12 months x $2,000 per month) for its services. Thus, the firm will increase its income by $30000 ($54 .000 -- $24 .000).



View Related Case Study

In smaller businesses in which the management of cash is but one of numerous functions performed by the treasurer. Various cost incentives and diversification arguments suggest that surplus cash should be invested in

  1. Commercial paper.
  2. Bankers' acceptances.
  3. Money market mutual funds.
  4. Corporate bonds.

Answer(s): C

Explanation:

A small firm with surplus cash should invest for the highest return and lowest risk. The ability' to convert the investment into cash without a loss of principal is also important. Money market mutual funds invest in .y market certificates such as treasury bills, negotiable CDs, and commercial paper. Because of diversification, these mutual funds are superior to any single instrument.



View Related Case Study

A firm has daily cash receipts of $200,000. A commercial bank has offered to reduce the collection time by 3 days. The bank requires a monthly fee of $4,000 for providing this service. If money market rates will average 12% during the year, the additional annual income (loss) of having the service is

  1. $(24,000).
  2. $24,000.
  3. $66,240.
  4. $68,000.

Answer(s): B

Explanation:

Since collect ones will be expedited by three days at the rate of $200,000 per day, the company will have an additional $600,000 to invest. At 12%, the interest earned would be $72,000 per year. However, the bank will charge $48,000 (12 months x $4,000 per month) for its services. Thus, the firm will increase its income by $24,000 ($72,000 -- $48,000).



Page 197 of 336



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