Question
14. On January 1, 2021, ABC Bank loaned P2,000,000 to a borrower. The contract specified that the loan had an 8-year term and a 10%
14. On January 1, 2021, ABC Bank loaned P2,000,000 to a borrower. The contract specified that the loan had an 8-year term and a 10% interest rate. Interest is payable annually every December 31 and the principal amount will be collected on December 31, 2028. Interest is collected for 2021. On December 31, 2021, the bank determined that the loan has a 12-month probability of default of 20% and expected to collect only 92% of the loan. On December 31, 2022, the bank determined that there is a significant increase in the credit risk of the loan but no objective evidence of impairment. Based on the relevant information, the bank concluded that there is a 30% probability of default over the remaining term of the loan and it is expected that only 65% of the loan will be collected. Interest is collected for 2022. Round off present value factor to 4-decimal places. Compute the carrying value of the loan as of the end of December 2022.
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