LICEO DE CAGAYAN UNIVERSITY

Rodolfo N. Pelaez Boulevard, Kauswagan

Cagayan de Oro City, Misamis Oriental

CREDIT & COLLECTION

MIDTERM QUIZ 1

Submitted By:

Charrysah T. Tabaosares

BSBA – FM4

Submitted To:

Mario E. Temporada

Date Submitted:

October 23, 2020

 FM 105 (CREDIT AND COLLECTIONS)
MIDTERM EXAMINATION

Test 1- Problem solving: Show supporting computations.

1. Miss Charry wants to have P10,000 in a year’s time with a bank that pays 16% p.a.
compounded quarterly. How much should Miss Charry invest now to have P10,000
one year hence?

P= F
(1 + i) n
= P 10,000
(1+16%)4
= P 10,000
(116%)4
= P 10,000
181.06%
= P 5,522.91

2. China Bank pays interest on savings at the rate of 16%, compounded semi- annually. If
Miss Christine invest P 20,000 today., how much will she have in two years, assuming
no withdrawals?

F = P (1+i) n
= P 20,000 (1+16%) 4
= P 20,000 (116%) 4
= P 20,000 (181.06%)
= P 36,212.79
3. What is the total Present Value of P1,000 received 30 days from now and P 2,000
received 2 months from now if interest rate is 1.50% p.m?

PV 1 P 1,000 x 0.0150 x 1 = 15
P 1,000 +15 = P 1,015

PV 2 P 2,000 x 0.0150 x 2 = 60
P 2,000 + 60 = P 2,060

Total PV P 1,015 + P 2,060 = P 3,075

4. Determine the amount of interest earned on the following:

a. P9,000 borrowed from a bank at 10% simple annual interest for 8 months?
=PxRxT
= P 9,000 x 10% (8/12)
= P 9,000 x 10% (0.666666666666667)
= P 900 (0.666666666666667)
= P 600
b. P15,000 invested in 2 years at 15% simple annual interest?
=PxRxT
= P 15,000 x 15% 2 Years
= P 2250 x 2
= P 4,500
Test II- Essay

1. Explain briefly the 5C’s of credit.

 The 5 C’s of Credit.

 Character – Character measures how reliable and trustworthy you are.
Lenders have a good reason to consider your character and that is simply
that they need to be able to know if you are going to pay them back.
 Capacity - Capacity is also referred to as cash flow and indicates your ability
to repay the loan.
 Capital - Capital measures your dedication to your business and how much
of your own money you have invested in.
 Conditions - Conditions refer to the state of your business and correlates to
that intended use of funds, so be sure to be explicit and transparent about
your plan on using the money.
 Collateral - Collateral is the assets you pledge to support your loan.

2. Economist predict that interest rates will go up in 3 to 5 years. If you are a

borrower, what kind of interest scheme would you prefer fixed or variable. If you are
a lender, what would be your preference?

 If I am the borrower, I would prefer to go on fixed rates for the reason that I am
protected with the prediction that interest rates would go up. My Interest rates is
stable and does not affected with the said prediction.

 If I would be the lender, I would also prefer the fixed rates for the reason that it’s
just a prediction. I would not gamble my interest rates for this prediction. What if
the rates go down? It would be a great risk for me. For me to have variable rates is
like to gamble.
3. What is the difference between a nominal and an effective interest rate?

 An interest rate takes two forms: nominal interest rate and effective interest rate.
The nominal interest rate does not take into account the compounding period. The
effective interest rate does take the compounding period into account and thus is a
more accurate measure of interest charges.

4. In what Philippine industry is the usage of add-on interest rate is very popular and
most common?

 Add-on interest rates is very popular in appliance industry or credit and consumer
loans industry. It is called add-on because the interest is ‘added’ to the principal and
then divided by the term credit.