Consider Problem 16-3. Suppose that Bank1 currently has $500,000 worth of outstanding loans. Of these, $100,000 have just been paid, $50,000 are 1 quarter late, $150,000 are 2 quarters late, $100,000 are 3 quarters late, and the rest are over 4 quarters late. What would the picture of these loans be like after two cycles of loans?

Problem 16-3

Bank1 offers loans which are either paid when due or are delayed. If the payment on a loan is delayed by more than 4 quarters (1 year), Bank1 considers the loan a bad debt and writes it off. The following table provides a sample of Bank1’s past experience with loans.