Question

1) Define the following terms:

1. Borrower’s credit risk
2. Present value vs. Future value of a payment (asset).
3. Uncertainty vs. risk

Answer 1

Borrower's credit risk refers to the ability of the borrower towards the payment of fixed financial commitments and of the principle or amount borrowed. A sound financial position and a good creditworthiness results in a lower degree of borrower's credit risk.

Present value refers to the value of assets in present time i.e. in today's purchasing power. Present value refers to the price at which asset is available in present time.

Future value refers to the price at which asset would be available into future, taking into consideration the effect of inflation into current price or in present value.

Uncertainty refers to the the situation in which the future events are not known while risk refers to probability of winning or losing something worthy is known as risk.