[niko1703]

John, thank you for clarification!

You’re doing great job teaching students all over the world.
And thank you very much for your great video lectures.

[niko1703]

Reference to LSBFs answer:

Actual interest paid (5.25% x 2/12 x £45m) = (393,750)
Net premium paid = (7,125)
Net cost of loan = (400,875)
Effective interest cost (£400,875 / £45m) x (12 / 2) = 5.35%

[niko1703]

Sorry, John, you are right.

I’ve just found the examiners answer in the internet.
It differs from the approach printed in by book (LSBF’s books).

I’ve done 0.1430 x 1.03/1,06 = €/$ 0.1389, simply confusing numerator and denominator. However, in my book the answer is:

“Spot rate in $’s per € = 1/0.143 = 6.993 per €1
• Year 1 = 6.993 x 1.03/1.06 = 6.795”
So they used this $/€ rate further in calculation.

And when I compared their “6.993 x 1.03/1.06” to my “0.1430 x 1.03/1,06”, it led me thinking that numerator and denominator are correct, and my mistake in not reversing current spot rate, omitting this step. And this confused me significantly… 🙂 In fact (as i understand now), it is unnecessary step.

I have no idea why LSBF state answers in other manner of examinator’s way.
It is not the first time their answer just confuses me.

Nick

[niko1703]

Thank you, John!

[niko1703]

Hi again John,

When talking on securitisation and tranching.
In the question Moonstar, we want to finance acquisition of commercial property $200m. This property generates income of 11% annually.

Am I correct when understand this as we cannot receive any income from this activity (commercial property) at all ?

What i mean in details -> 11% of $200m is $22m (do not take into account admin. costs) .
And all of this income goes to finance providers.
If this % of income is lower or higher -> then finance providers, not the Company itself, burden the risks (if lower) or benefits from it (if higher).

For example when we raise funding of $200 with fixed 11% as a usual loan to purchase commercial property – If the income from commercial property is 12%, then 1% is the Company’s net income (not accounting tax). But with securitisation, all 12% will now be distributed benefiting subordinate certificate holders?

Am i correct in this?

Thanks

Nick

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