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CA Final · Advanced Financial Management · Securitization

An SPV holds two loans: ₹60 crore at 10% p.a. and ₹40 crore at 13% p.a. It issues PTCs at a 9.5% p.a. yield on the entire ₹100 crore, and incurs trustee and rating expenses of 0.7% p.a. on the pool. What is the annual excess spread in rupees?

The excess spread is ₹1.00 crore. The pool's weighted average yield is 11.2% (₹11.2 crore interest on ₹100 crore). Deducting 9.5% paid to investors and 0.7% of expenses leaves 1.0%, which is ₹1 crore a year.

  1. A₹1.00 croreCorrect
  2. B₹1.30 crore
  3. C₹1.70 crore
  4. D₹0.30 crore

Explanation

Weighted average coupon = (6.0 + 5.2)/100 = 11.2%. Excess spread = 11.2% - 9.5% - 0.7% = 1.0%, which is ₹1.00 crore. ₹1.30 crore results from using the simple average of 11.5%. ₹1.70 crore ignores the expenses.

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