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CA Final · Advanced Financial Management · Securitization

An SPV issues a PTC of face value Rs 10,00,000 repayable at par at the end of 3 years, with a 9% annual coupon paid at each year end. Investors require a yield of 10%. Given PVAF(10%,3)=2.4869 and PV factor(10%,3)=0.7513, what is the fair issue price of the PTC?

The fair price is Rs 9,75,121. The 9% coupon is below the 10% required yield, so the PTC sells at a discount. Discounting the Rs 90,000 annual coupons and the Rs 10 lakh redemption at 10% gives Rs 2,23,821 plus Rs 7,51,300.

  1. ARs 9,75,121Correct
  2. BRs 10,00,000
  3. CRs 10,21,300
  4. DRs 7,51,300

Explanation

Coupon = Rs 90,000. PV of coupons = 90,000 x 2.4869 = Rs 2,23,821. PV of principal = 10,00,000 x 0.7513 = Rs 7,51,300. Total = Rs 9,75,121. Rs 10,21,300 adds undiscounted coupons to discounted principal. Rs 7,51,300 omits the coupons.

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