If you were responsible for short-term investment of your firm\"s excess cash, which security...

1. Consider three securities:

a. A floating-rate bond.

b. A preferred share paying a fixed dividend.

c. A floating-rate preferred.

If you were responsible for short-term investment of your firm’s excess cash, which security would you probably prefer to hold? Why? Explain briefly.

2. True or false?

a. Most commercial bank loans are made under commitment.

b. A line of credit provides the lender with a put option.

c. Bank term loans typically have a maturity of several years.

d. If the interest rate on a one-year bank loan is stated as a discount of 10%, the actual yield on the loan is less than 10%.

e. The interest rate on term loans is usually linked to LIBOR, the federal funds rate, or the bank’s prime rate.