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28 Aug 2018

A farmer needs to borrow $50,000. The local PCA will make a four year loan fully amortized at 12% with annual payments. A $100 loan fee and stock purchase is required. The borrower stock requirement is the lesser of $1,000 or 2% of loan principal. Assume that sufficient money is borrowed to cover the $50,000, the fee and the stock requirement. Also assume that the stock requirement is returned to borrower when the loan is paid off and the last debt payment can be reduced by the stock amount. How much money needs to be borrowed? What is the dollar amount of the stock requirement? What is the annual loan payment? What is the actuarial, annual percentage, and the effective interest rate? (AIR, APR, ie = 12.44%)


How much does the borrower need to borrow in order to cover money needed, stock and loan fee?
A. $16,824
B. $51,100
C. $1,000
D. $16,462
E. None of the above

How much stock does the farmer need to purchase?
A. $16,824
B. $51,100
C. $1,000
D. $16,462
E. None of the above

How much stock is returned to the farmer when the loan is retired?
A. $16,824
B. $51,100
C. $1,000
D. $16,462
E. None of the above

What is the annual loan payment?
A. $16,824
B. $51,100
C. $1,000
D. $16,462
E. None of the above


What is the actuarial rate?
A. 12%
B. 12.44%
C. 3%
D. 4%
E. None of the above


What is the APR?
A. 12%
B. 12.44%
C. 3%
D. 4%
E. None of the above

What is the effective rate?
A. 12%
B. 12.44%
C. 3%
D. 4%
E. None of the above

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Tod Thiel
Tod ThielLv2
31 Aug 2018

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Use two decimal places in your answers ( please show work )

1. A firm plans to issue $5,000,000 of commercial paper for 30 days. A dealer will issue the paper at $4,985,000 at a fee of $2,000 in advance. What is the effective annual rate?

2. A firm has agreed to borrow $750,000 at a simple interest rate of 6% for 30 days to meet its short-term funding needs. The bank charges a loan processing fee of $1,000. What is the effective annual rate on this loan?

3. Assume a trade creditor offers you terms of 2/10 net 40. a. What is the effective annual cost of forgoing the discount? b. If the firm=s bank charges 14% on loans, would you take the trade credit discount?

4. A firm has established a revolving line of credit for $900,000 with a bank at a rate of prime plus 2%. There is an annual fee of 1/2% on any unused funds. Interest is discounted on loans. Prime was 5% when the agreement was made. Assume the firm decides to take down the line for $500,000 for 60 days when the prime is at 6%. What is the effective annual rate?

5. A firm has $500,000 in accounts receivable. A commercial bank will accept these accounts receivable as collateral and will advance the firm 75% of the accounts receivable amount on loan at 6%. The bank charges a $5,000 credit checking fee. The firm will use the agreement for 90 days. What is the effective annual rate?

6. A firm needs full use of $2,000,000 to purchase a new machine. A bank has agreed to loan at 9% discounted interest for 180 days. The bank requires a .25% compensating balance. The bank charges fees in advance of $300. a. How much will the firm need to borrow? b. What will be the effective annual rate on the loan?

7. A firm has $900,000 in inventory qualifying for a short-term loan with a warehouse receipt. A commercial bank will accept this warehousing agreement and inventory as collateral and will advance 80% of the value of the inventory on loan at 6%. The bank charges $5,000 upfront for the agreement. The firm will use the borrowing for 60 days. What is the effective annual rate on the borrowing?

You decide to purchase on margin 1000 shares of ABC stock currently trading at $25 each. Your initial margin is 40% and your broker allows you a buffer of 10% before making a margin call – i.e., the maintenance margin is 30%.

(a) How much must you invest initially to purchase the shares and what is the amount you borrow from your broker?

(b) How far can share price fall before a margin call is triggered?

(c) Now assume that share price drops to $20. You received a margin call and you decided to deposit T-bills in your account to increase the margin; the deposit will increase the total value of your margin account while NOT changing the value of the loan. That is, the total value of your account will be the sum of the value of 1000 shares and the value of T-bills. What is the total value of T-bills you need to put up, in order to get the margin back up to the maintenance margin of 30%?

(d) If you do not take an action in time your broker will partly liquidate your position and repay the loan in order to (just) meet the maintenance margin requirement. How many shares would the broker sell in order to get the margin back up to the maintenance margin of 30%?

7. A principle of transaction balancing is that for every _________there must be a_________. 8. Determine the ending cash figure for this teller’s work day: Beginning cash $11,000 Cash checks 4,000 Cash deposits 7,000 Installment loan cash payment received 2,000 Savings withdrawals 1,000 Cash received from the vault 500 9. If a customer requests guaranteed funds to purchase an automobile, which Of the following is not acceptable? A. official check B. money order C. cashier’s check D. certified check E. personal check 10. Traveler’s checks cannot be replaced if lost or stolen? a. True b. False 11. A customer wishes to purchase a Series E U.S. savings bond. Can you process this transaction? 12. Mr. Johnson, a valued customer, wishes to cash a Series EE bond issued three months ago. How long must he wait before cashing the bond? 13. A cash advance against a bankcard is a money loan for which the customer Must repay the principal advance amount plus a (n) a. Finance charge b. 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You take the change from Your wallet and indicate that your cash vault balances. Is this proper procedure? 22. What are the four elements of professional appearance? __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 23. What is your best tool for managing difficult customers? 24. What are four kinds of behavior that tellers can use to foster effective communication? With customers? __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 25. What are the three components of quality service? __________________________________________________________ __________________________________________________________ __________________________________________________________ 26. What action might customers take if tellers do not keep them informed of? New products and services? 27. How many times should you try to use a customer’s name during a transaction? 28. What are the five steps you should follow to respond effectively to a customer’s Banking needs? __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 29. What product would you recommend to a customer who carries excessive? Valuables in a briefcase? 30. What type of loan do customers generally request for purchasing a car? 31. What product would you recommend to a customer who purchases money? Orders to pay bills? 32. Are the contents of a safe deposit box insured by the FDIC? 7. A principle of transaction balancing is that for every _________there must be a_________. 8. Determine the ending cash figure for this teller’s work day: Beginning cash $11,000 Cash checks 4,000 Cash deposits 7,000 Installment loan cash payment received 2,000 Savings withdrawals 1,000 Cash received from the vault 500 9. If a customer requests guaranteed funds to purchase an automobile, which Of the following is not acceptable? A. official check B. money order C. cashier’s check D. certified check E. personal check 10. Traveler’s checks cannot be replaced if lost or stolen? a. True b. False 11. A customer wishes to purchase a Series E U.S. savings bond. Can you process this transaction? 12. Mr. Johnson, a valued customer, wishes to cash a Series EE bond issued three months ago. How long must he wait before cashing the bond? 13. A cash advance against a bankcard is a money loan for which the customer Must repay the principal advance amount plus a (n) a. Finance charge b. Origination fee c. Closing fee d. Transaction fee 14. Should you cooperate with the robber’s demand for money? If so, how Much should you give? 15. Why should you “meet and greet” all unknown customers? 16. Why do criminals usually make bomb threats? 17. What bank personnel are most likely to be the object of a kidnapping? How can you help protect them? 18. What should be your first concern in a fire? 19. List five behavioral characteristics of a con artist. __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 20. You arrive for work at the bank and notice that the opening code signal Has not been activated. What should you do? 21. At the close of the day, you are 37 cents short. You take the change from Your wallet and indicate that your cash vault balances. Is this proper procedure? 22. What are the four elements of professional appearance? __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 23. What is your best tool for managing difficult customers? 24. What are four kinds of behavior that tellers can use to foster effective communication? With customers? __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 25. What are the three components of quality service? __________________________________________________________ __________________________________________________________ __________________________________________________________ 26. What action might customers take if tellers do not keep them informed of? New products and services? 27. How many times should you try to use a customer’s name during a transaction? 28. What are the five steps you should follow to respond effectively to a customer’s Banking needs? __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 29. What product would you recommend to a customer who carries excessive? Valuables in a briefcase? 30. What type of loan do customers generally request for purchasing a car? 31. What product would you recommend to a customer who purchases money? Orders to pay bills? 32. Are the contents of a safe deposit box insured by the FDIC? 7. A principle of transaction balancing is that for every _________there must be a_________. 8. Determine the ending cash figure for this teller’s work day: Beginning cash $11,000 Cash checks 4,000 Cash deposits 7,000 Installment loan cash payment received 2,000 Savings withdrawals 1,000 Cash received from the vault 500 9. If a customer requests guaranteed funds to purchase an automobile, which Of the following is not acceptable? A. official check B. money order C. cashier’s check D. certified check E. personal check 10. Traveler’s checks cannot be replaced if lost or stolen? a. True b. False 11. A customer wishes to purchase a Series E U.S. savings bond. Can you process this transaction? 12. Mr. Johnson, a valued customer, wishes to cash a Series EE bond issued three months ago. How long must he wait before cashing the bond? 13. A cash advance against a bankcard is a money loan for which the customer Must repay the principal advance amount plus a (n) a. Finance charge b. Origination fee c. Closing fee d. Transaction fee 14. Should you cooperate with the robber’s demand for money? If so, how Much should you give? 15. Why should you “meet and greet” all unknown customers? 16. Why do criminals usually make bomb threats? 17. What bank personnel are most likely to be the object of a kidnapping? How can you help protect them? 18. What should be your first concern in a fire? 19. List five behavioral characteristics of a con artist. __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 20. You arrive for work at the bank and notice that the opening code signal Has not been activated. What should you do? 21. At the close of the day, you are 37 cents short. You take the change from Your wallet and indicate that your cash vault balances. Is this proper procedure? 22. What are the four elements of professional appearance? __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 23. What is your best tool for managing difficult customers? 24. What are four kinds of behavior that tellers can use to foster effective communication? With customers? __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 25. What are the three components of quality service? __________________________________________________________ __________________________________________________________ __________________________________________________________ 26. What action might customers take if tellers do not keep them informed of? New products and services? 27. How many times should you try to use a customer’s name during a transaction? 28. What are the five steps you should follow to respond effectively to a customer’s Banking needs? __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ 29. What product would you recommend to a customer who carries excessive? Valuables in a briefcase? 30. What type of loan do customers generally request for purchasing a car? 31. 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