CA Final · Advanced Financial Management · Securitization
Sundaram Finance Ltd (originator) securitizes a loan pool with outstanding principal of Rs 50 crore. The SPV pays Rs 47.5 crore to the originator and issues PTCs of Rs 47.5 crore. Which of the following is the discount on the sale, and what is it as a percentage of the pool principal?
The discount is Rs 2.5 crore, being Rs 50 crore pool principal minus Rs 47.5 crore paid by the SPV. As a percentage of pool principal it is 5.00%. Using the purchase price as the base would wrongly give 5.26%.
- ARs 2.5 crore; 5.00%Correct
- BRs 2.5 crore; 5.26%
- CRs 47.5 crore; 95%
- DRs 2.5 crore; 4.75%
Explanation
Discount = 50 - 47.5 = Rs 2.5 crore. As a percentage of the pool principal it is 2.5/50 = 5.00%. The 5.26% figure uses the purchase price as the base (2.5/47.5), which is the wrong base. The 4.75% figure comes from wrongly applying 5% to 95 percent.
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