4. A conservative financing plan involves
A. ANSWER Heavy reliance on debt
B. Heavy reliance on equity
C. High degree of financial leverage
D. High degree of combined leverage
I chose (A) because financial leverage is the use of debt financing.
5. At age 5, how much would you have to save per month to have $1 million in your account at age 65, if your investment rate was 10% per year? Assume no taxes and compounding on a monthly basis.
ANSWER: $21.23
I use a financial calculator...well a TI-83.....N=(65-5)*12; I%=10%/12; PV=0; PMT=0; FV=1,000,000 ...... Then I used the solver for PMT and (-$21.23)
the negative represents a cash outflow....
6. The extent to which inventory financing may be used depends on
A. Marketability of pledged goods
B. Price stability of goods
C. Perishability of goods
D. ANSWER All of the above
the question is straight foward if a company is going to use their inventory as collateral for a loan then A,B, and C should be considered by the bank prior to issuing the loan.
7. Which of the following is not a type of financial institution?
A. Commercial Bank
B. ANSWER Retail Store
C. Credit Union
D. Insurance Company
I chose (B) because a retail store is not a type of financial institution. A financial institution is an organization that provides financial services such as banking, lending, investing, and insurance.
Good job on answering questions 4, 5, and 6 correctly! Your explanations are accurate and comprehensive. Keep up the great work! If you have any more questions, feel free to ask.
Correct!
For question 4, a conservative financing plan involves a heavy reliance on debt (option A). You accurately mentioned that financial leverage is the use of debt financing, which is a characteristic of a conservative financing plan.
For question 5, you correctly used a financial calculator (TI-83) to determine the monthly savings required to accumulate $1 million in an account by the age of 65, assuming a 10% annual investment rate, no taxes, and monthly compounding. Your calculations and use of the solver function led you to the answer of $21.23 per month.
For question 6, the correct answer is all of the above (option D). When determining the extent to which inventory financing may be used, factors such as the marketability of pledged goods (option A), price stability of goods (option B), and perishability of goods (option C) need to be considered by the bank before issuing the loan. Your explanation accurately recognizes that all these factors should be taken into account when using inventory as collateral for a loan.