CMA Final · Strategic Financial Management · Securitization
Sundaram Finance Ltd securitises a pool of loans with outstanding principal of Rs 50 crore. The loans carry a weighted average interest of 12% p.a. PTCs are issued at a yield of 9% p.a. on Rs 50 crore. Ignoring servicing and other costs, what is the annual excess spread available (in Rs lakh)?
The excess spread is Rs 150 lakh a year. The pool earns 12% and investors are paid 9%, leaving 3% on Rs 50 crore, which is Rs 1.5 crore, before any servicing or other costs.
- A150Correct
- B450
- C600
- D1,050
Explanation
Excess spread = (12% - 9%) x Rs 50 crore = 3% x 5,000 lakh = Rs 150 lakh. Rs 450 lakh wrongly uses 9% as the spread, and Rs 600 lakh is the pool interest alone. Rs 1,050 lakh adds the two rates.
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