Skip to content

CA Final · Advanced Financial Management · Securitization

Kaveri Bank sells to an SPV a pool of receivables that pays Rs 40 lakh at the end of each of the next 3 years. The pool's original contractual rate is 12%, and investors in the SPV require a yield of 10%. Given PVAF(12%,3)=2.4018 and PVAF(10%,3)=2.4869, what is the approximate gain on sale to the bank, taking the carrying value as the present value at 12%?

The gain on sale is about Rs 3.40 lakh. The SPV pays the present value at its 10% yield, about Rs 99.48 lakh, while the receivables carry at Rs 96.07 lakh when discounted at 12%. The difference between the two is the gain.

  1. ARs 3.40 lakhCorrect
  2. BRs 6.80 lakh
  3. CRs 96.07 lakh
  4. DRs 99.48 lakh

Explanation

Carrying value at 12% = 40 x 2.4018 = Rs 96.07 lakh. Sale price at 10% = 40 x 2.4869 = Rs 99.48 lakh. Gain = 99.48 - 96.07, which is about Rs 3.40 lakh. Rs 99.48 lakh is the sale price rather than the gain, and Rs 96.07 lakh is the carrying value.

Did you get it right without looking?

One question tells you little. A timed set on Securitization shows your real accuracy, how long you take and where you lose marks.

Practise SecuritizationFree diagnostic mock

More Securitization questions