CMA Final · Strategic Financial Management · Securitization
A pool of loans of Rs 120 crore is securitized. The pool has a weighted average maturity of 5 years, and the SPV pays a coupon of 10% p.a. on certificates issued at par. Annual prepayments occur at a constant rate, and at the end of year 1 the scheduled principal repayment is Rs 20 crore, while prepayments of Rs 10 crore also occur. Interest for year 1 is on the opening balance. What is the total cash flow to investors at end of year 1 (interest plus principal)?
Investors receive interest of Rs 12 crore (10% on Rs 120 crore) plus principal of Rs 30 crore (scheduled Rs 20 crore and prepayment Rs 10 crore), making a total year-1 cash flow of Rs 42 crore.
- ARs 42 croreCorrect
- BRs 30 crore
- CRs 32 crore
- DRs 12 crore
Explanation
Interest = 10% x 120 = Rs 12 crore. Principal = scheduled 20 + prepayment 10 = Rs 30 crore. Total = Rs 42 crore. Rs 32 crore omits prepayment; Rs 30 crore omits interest.
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