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CMA Final · Strategic Financial Management · Securitization

A pool of Rs 100 crore of housing loans is securitised. Investors receive PTCs of Rs 100 crore carrying 8% p.a. The pool's cash collections for a year consist of interest of Rs 10 crore and principal repayment of Rs 5 crore. If the investors are paid interest of 8% on the opening principal and all principal collected, how much remains as residual cash for the originator in the year, ignoring fees?

Total collections of Rs 15 crore are reduced by Rs 8 crore of investor interest and Rs 5 crore of principal passed through, leaving Rs 2 crore of residual for the originator. Ignoring the principal pass-through would wrongly give Rs 7 crore.

  1. ARs 2 croreCorrect
  2. BRs 7 crore
  3. CRs 5 crore
  4. DRs 10 crore

Explanation

Investor interest = 8% x Rs 100 crore = Rs 8 crore. Collections are Rs 15 crore in total. Payments to investors are Rs 8 crore interest plus Rs 5 crore principal = Rs 13 crore. Residual = 15 - 13 = Rs 2 crore. Rs 7 crore wrongly ignores principal being passed through.

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