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Free CMA Exam Braindumps (page: 199)

Page 199 of 336
PDF with 1336 Questions
View Related Case Study

What happens to the price of a three-year $1 .000 bond with an 8% coupon when market interest rates change from 8% to 6%?

  1. A price increase of $7.68.
  2. A price decrease of $7.68.
  3. A price increase of $53.84.
  4. A price decrease of $53.84.

Answer(s): C

Explanation:

The decline in rates will increase the value of bonds already outstanding. Since the market rate initially matched the coupon rate, the value would have been $1000. The calculation of value following the rate decline would be as follows using 6% present value tables.

The price should increase by $53.84.



View Related Case Study

Methods of accelerating cash collections include all of the following except

  1. Decentralized collections.
  2. Electronic funds transfers.
  3. Compensating balances.
  4. Lockbox systems.

Answer(s): C

Explanation:

Various methods of accelerating cash collections include decentralized collection outposts (normally one in each Federal Reserve District), electronic funds transfers, centralized banking for all company branches to avoid having to maintain minimum balances in several locations, and lockbox systems. A compensating balance is a minimum average or absolute amount that must be maintained in a bank account. Hence, it is not a means of accelerating cash collections. This requirement means that less cash is available to the depositor.



View Related Case Study

The Alumnae Corporation was recently quoted terms on a commercial bank loan of 7% discounted interest with a 20% compensating balance. The term of the loan is 1 year. The effective cost of borrowing is (rounded to the nearest hundredth)

  1. 8.75%.
  2. 941%.
  3. 7.53%.
  4. 9.59%.

Answer(s): D

Explanation:

Assuming a $1,000 loan1 the interest at 7% for 1 year is $70. Hence, the proceeds of the loan are $930 ($1,000--$70). Also, 20% of the note or $2001 cannot be used by the borrower because of the compensating balance requirement. Consequently, only $730 is available for use by the borrower. Paying $70 interest for the use of $730 gives an interest rate of $9.59%_($70÷ $730).



View Related Case Study

The following information applies to Brandon Company:

A cash payment equal to 40% of purchases is made at the time of purchase1 and 30% is paid in each of the next 2 months. Purchases for the previous November and December were $150,000 per month. Payroll is 10% of sales in the month it occurs, and operating expenses are 20% of the following month's sales (July sales were $220,000). Interest payments were $20,000 paid quarterly in January and April. Brandon's cash disbursements for the month of April were

  1. $140,000.
  2. $152,000.
  3. $200,000.
  4. $254,000.

Answer(s): D

Explanation:

The cash disbursements for the month of April include 40% of April purchases1 30% of March purchases, 30% of February purchases, April payroll (10% of April sales), operating expenses (20% of May sales)1 and an interest payment of $20,000.



Page 199 of 336



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