CMA Final · Strategic Financial Management · Securitization
A pool of loans of Rs 100 lakh yields cash flows of Rs 40 lakh at the end of each of the next three years (total Rs 120 lakh). PTC investors require a yield of 10% p.a. Using PV factors at 10% of 0.9091, 0.8264 and 0.7513, what is the price at which the SPV can issue the PTCs, in Rs lakh (nearest)?
The PTC issue price is about Rs 99.47 lakh. It is the present value of three annual receipts of Rs 40 lakh discounted at 10%, using an annuity factor of 2.4868, which is slightly below the pool face value of Rs 100 lakh.
- A100.00
- B99.47Correct
- C120.00
- D90.91
Explanation
PV = 40 x (0.9091 + 0.8264 + 0.7513) = 40 x 2.4868 = 99.47 lakh. Option 100 ignores discounting subtleties and 120 is the undiscounted sum.
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