Question

Which of the following best describes the benefits to the borrower of selling asset-backed securities?

		Due to the portfolio effect, the borrower can package up low-quality accounts receivable and sell them for a premium price.
		The borrower trades future cash flows for current cash flows.
		The asset-backed security is likely to carry a high credit rating of AA or better.
		The borrower trades future cash flows for current cash flows and the asset-backed security is likely to carry a high credit rating of AA or better.

Koopman's Chickens, Inc. plans to borrow $275,000 from its bank for one year. The rate of interest is 9%, but a compensating balance of 20% is required. What is the effective rate of interest?

		Less than 11.4%
		More than 11.4% but less than 11.6%
		More than 11.6% but less than 11.8%
		More than 11.8%

If Analog Computers can borrow at 8% for three years, what is the effective rate of interest on a $1,000,000 loan where a 15% compensating balance is required?

		11.18%
		17.27%
		9.41%
		None of these options

Which of the following is associated with the recession of 2007-2009?

		Hundreds of bank failures occurred.
		The Federal Reserve and the Federal Deposit Insurance Corporation forced large banks at risk of collapse to be taken over by healthy banks.
		Commercial banks and investment banks were allowed to merge.
		All of these options

Which of the following is NOT a characteristic of commercial paper?

		It is issued by large firms.
		It has a one- to two-year maturity.
		Its rates are usually below prime rates on business loans.
		All of these options are commercial paper characteristics.

Answer 1

1.
Both of the highlighted options are correct but if you have to choose 1, choose:
The asset-backed security is likely to carry a high credit rating of AA or better.

I can only answer 1 question at a time, so I am answering only question 1. Please do rate me and mention doubts, if any, in the comments section.