HERNANDEZ, NIÑA CASSANDRA M.

BSBA FM2-G2
BANKING AND FINANCIAL INSTITUTION

ANALYTICAL PROBLEMS

1. If offered the choice of receiving P 1,000 today or P 1,000 in one year' s time, why
would you choose the first option.
- The first option is the best nowaday since we may use the money to pay for
necessities like food and housing. If we already have enough cash to get by, we can
utilize the extra 1000 to pay for clothing, books, or travel. In addition, we can now
start a small firm with 1,000 as an investment and then recoup our costs as the
business expands.

2. If time has value why are financial institutions often willing to extend you a 30 year
mortgage at a lower anual interest rate than they would charge for a one year loan?
- Financial organizations make money by adding interest to the home loans
they provide to its clients. However, they lose money if a loan fails and they are not
reimbursed. As many of these subpar loans as they can be avoided. When a person
obtains a mortgage, the home they purchase serves as security for the lending
company and serves as collateral for the loan. The likelihood of losing money is
significantly reduced because the bank has the ability to sell the home in the case of
a default and recoup its funds. Collateral lowers the risk connected with the loan,
which in turn lowers the bank's demand for payment.

3. Using Core principle 2, under what circumstances would you expect a job applicant
to accept an offer of a low base salary and an opportunity to earn commission over one
with a higher base salary and no commission potential?
- Since they need to be compensated for the risk they take because the amount
of commission earnings is unclear, the candidate would have to plan on earning a
greater total wage while working for a low base and commission.

4. Suppose medical research confirns earlier speculation that red wine is good for you.
Why would banks be willing to lend to vineyards that produce red wine at a lower
interest rate than before?
- The risk associated with lending to the vineyards has decreased because of
the better future prospects for those businesses. Less compensation is now needed by
the banks.