CMA Final · Strategic Financial Management · Securitization
A pool of auto loans has outstanding principal of Rs 50 crore at the start of a month. During the month, scheduled principal repayment is Rs 1.5 crore and prepayments are Rs 0.5 crore. Single Monthly Mortality (SMM) is computed on the principal available after the scheduled repayment. What is the SMM, correct to two decimals?
SMM is 1.03%. Prepayment of Rs 0.5 crore is divided by the balance remaining after scheduled principal, which is Rs 48.5 crore. Dividing by the opening Rs 50 crore would wrongly give 1.00%, because SMM is measured on the post-scheduled-payment balance.
- A1.00%
- B1.03%Correct
- C4.00%
- D3.00%
Explanation
Principal after scheduled repayment = 50 - 1.5 = 48.5 crore. SMM = prepayment / that balance = 0.5/48.5 = 1.03%. Using the opening balance of 50 gives 1.00%, which ignores the scheduled repayment adjustment.
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