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  • 1.  CMA Practice Question

    Posted 01-25-2022 11:19 AM
    Can Someone help me how to approach this question?


    Mandel Inc. has a zero-balance account with a commercial bank. The bank sweeps any excess cash into a commercial investment account earning interest at the rate of 4% per year, payable monthly. When Mandel has a cash deficit, a line of credit is used which has an interest rate of 8% per year, payable monthly based on the amount used. Mandel expects to have a $2 million cash balance on January 1 of next year. Net cash flows for the first half of the year, excluding the effects of interest received or paid, are forecasted (in millions of dollars) as follows.

    Jan Feb Mar Apr May Jun Net cash inflows ($) +2 +1 -5 -3 -2 +6

    Assuming all cash-flows occur at the end of each month, approximately how much interest will Mandel incur for this period?


      1. $17,000 net interest paid.

      2. $53,000 net interest paid.

      3. $76,000 net interest paid.

      4. $195,000 net interest paid.



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    Meenakshi Ramakrishnan
    Student
    Chennai TN
    India
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  • 2.  RE: CMA Practice Question

    Posted 01-26-2022 04:11 AM
    Hi Meenakshi,

    I believe this should be the correct answer. Can you check and confirm?

    you will need to begin with creating tables. I know excel wouldn't be there but you will have to follow the same style on a book so that you can implement the same in the real exam. Since all the transactions happen at the end of the month, the interest earned or interest expense will incur in the following month as the inflows will be done at the end of the month as stated. So, charges or income earned in that month.

    Jan Feb Mar Apr May Jun Jul TOTAL
    open bal 2,000,000 4,000,000 5,000,000 0 (3,000,000) (5,000,000) 1,000,000  
    inflows 2,000,000 1,000,000 (5,000,000) (3,000,000) (2,000,000) 6,000,000  
    4% int income 6,667 13,333 16,667 0 0 0 0 36,667
    8% int exp 0 0 0 0 0 (20,000) (33,333) (53,333)
      6,667 13,333 16,667 0 0 (20,000) (33,333) (16,667)

    If I have missed anything. Please feel free to correct me.

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    Jay Chowdhury
    Mumbai India
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    Original Message


  • 3.  RE: CMA Practice Question

    Posted 02-02-2022 08:11 AM
    Hi - you need to calculate the interest paid or earned by month at the beginning balance of each period
    the interest is calculated as following
    Jan   Beg. Balance.    2m X 1/12 x4% =  6,666.7
    Feb.  Beg. Balance.    4m x 1/12 x4% = $13,333.3
    Mar.   Beg. Balance.   5m x 1/12 x4%  = $16,666.7
    Apr.   Beg. Balance.                            =  0
    May.  Beg bal.             (3m) x 1/12x 8%=$ (20,000)
    jun.   Beg bal.              (5m) x 1/12 x 8%= $(33,333.3)
                                                    Total         $16,666,7
    as mentioned in the question approximately then the answer is $16,000

    thx
    Fawaz,

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    Fawaz Alhamad
    Director/Manager
    Qatif
    Saudi Arabia
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    Original Message


  • 4.  RE: CMA Practice Question

    Posted 10-18-2023 01:09 AM

    Hello, 

    I will try to solve it easier way.

    Please remember, as question mentioned , that cash flows occurs at the end of the month, which means interest will be earned / paid only on the next month 1st day. (please notice the date & when cash flow occurs) 

    Jan 1 :  $2000000 (Opening balance) @ 4% / 12 = 6666.67

    Feb :  $2000000(previous balance) + $2000000(Jan - end- cash flow) @ 4% / 12 = 13333.33   (Now there is 4m in the account which will earn 4% interest)

    Mar 1 : $4000000 (previous balance) + $1000000(Feb -end- cash flow) @ 4% / 12 = 16666.67 (Now there is 5m in the account which will earn 4% interest)

    Apr 1 : $5000000 (previous balance) & -5000000(mar - end- cash outflow) = 0 (Now previous total positive 5m and negative 5m of mar will be offset and there no interest gain or loss)

    May 1 : -$3000000 (Apr - end- cash outflow) @ 8% / 12 = -$20000  (Now there is -3m cash deficit & 8% interest will be charged for using the line of credit)

    Jun 1 : -$3000000 (previous balance) & -$2000000 (May - end- cash outflow)  @ 8% / 12 = -$33333.33 ( Now interest must be paid for both previous and current negative balance @ 8%)

    Now adding everything = $6666.67 + $13333.33 + $16666.67 + $0 - $20000 - $33333.33 = -$16666.67 (Negative "interest paid")

     



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    SHAIBAN AHMED HAJI FAQUIH
    Accountant
    DUBAI
    United Arab Emirates
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    Original Message