100% solutions to Fundamentals of Credit assessment exam

Introduction to Credit – Source Funding There are many different sources of funding available for a company to be able to purchase CAPEX, or invest in projects, each with pros and cons. Which of the following is an advantage of using debt as a source of funding? Select all that apply.

Types & Features of Credit – Interest There are two kinds of interest, simple interest and compounding interest. If you borrow $5,000 with 4% interest compounded annually, how much total interest do you need to pay after 2 years?

Types & Features of Credit – Amortizing vs. Non-Amortizing When financing is of the “term” variety, meaning it’s not operating credit, it can be structured as either amortizing or as non-amortizing. Which of the following loans is most likely to have the lowest total interest cost?

Types & Features of Credit – Secured vs. Unsecured A lender (like a commercial bank or a credit union) will register charges against the assets of its borrowers using public security registries (often called Liens). Based on the loan details and payment schedule below, what type of loan is this? Loan Details: Principal Amount: 250,000 Amortization: 25 years Interest Rate: 5% Annual Principal Amount: 10,000 Collateral: House

Types & Features of Credit – Fixed vs. Variable There are many loan characteristics to take into consideration, but is whether the rate is fixed or variable. What is one advantage of a variable-rate loan?

The Credit Process & Analysis Fundamentals – The Credit Process There is a process through which credit gets extended to a borrower. What does the Analysis/Underwriting stage include in the Credit Process?

The Credit Process & Analysis Fundamentals – Industry, Business and Management Analysis Industry, Business, and Management analysis are categories that we would classify as being the more qualitative parts of a credit assessment. Which of the following tools is used to analyze the industry attractiveness in the credit application process?

The Credit Process & Analysis Fundamentals – Financial Ratios Financial ratios help us understand and evaluate a company’s overall financial health. What do the liquidity ratios tell you about a borrower?

The Credit Process & Analysis Fundamentals – The 5 Cs of Credit The 5 Cs is a foundational framework used by lenders when analyzing and assessing the creditworthiness of a prospective (or current) borrower. Which of the following are not part of the 5Cs of credit? Select all that apply.

The Credit Process & Analysis Fundamentals – The 5 Cs of Credit The 5 Cs is a foundational framework used by lenders when analyzing and assessing the creditworthiness of a prospective (or current) borrower. In the 5 Cs of credit, what does capacity measure?

The Credit Process & Analysis Fundamentals – Career Opportunities for Credit Professionals There are many career opportunities available to aspiring credit professionals. Which of the following statements are true regarding career opportunities for credit professionals? (Select all that apply)

Introduction to Credit – How & Why Credit is Used There are a variety of reasons why a management team may wish to use debt in its capital structure. Which of the following statements are true about using debt as a funding source? (Select all that apply)

Introduction to Credit – Why is Debt a Lower Risk Source of Funding? Different sources of funding (ie. credit vs. equity) have different relative levels of risk, and they’re priced accordingly. Which of the following statements about debt and equity are true? (Select all that apply)

Types & Features of Credit – Total Interest Considerations There are many considerations when it comes to creating a custom “loan structure.” After building our amortization schedules, which of the following statements is NOT true?

The Credit Process & Analysis Fundamentals – Financial Ratios Understanding how debt affects a company’s key financial ratios is imperative for credit professionals. From the perspective of a lender, which of the following statements are NOT true about a borrower’s financial ratios?