题目内容
Section B – TWO questions ONLY to be attempted
The finance division of GoSlo Motor Corporation has made a number of loans to customers with a current pool value of $200 million. The loans have an average term to maturity of four years. The loans generate a steady income to the business of 10·5% per annum. The company will use 95% of the loan’s pool as collateral for a collateralised loan obligation structured as follows:
– 80% of the collateral value to support a tranche of A-rated floating rate loan notes offering investors LIBOR plus 140 basis points.
– 10% of the collateral value to support a tranche of B-rated fixed rate loan notes offering investors 11%.
– 10% of the collateral value to support a tranche as subordinated certificates (unrated).
In order to minimise interest rate risk, the company has decided to enter into a fixed for variable rate swap on the A-rated floating rate notes exchanging LIBOR for 8·5%.
Service charges of $240,000 per annum will be charged for administering the income receivable from the loans.
You may ignore prepayment risk.
Required:
(a) Calculate the expected returns of the investments in each of the three tranches described above. Estimate the sensitivity of the subordinated certificates to a reduction of 1% in the returns generated by the pool. (10 marks)
(b) Explain the purpose and the methods of credit enhancement that can be employed on a securitisation such as this scheme. (4 marks)
(c) Discuss the risks inherent to the investors in a scheme such as this. (6 marks)
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The MandM Company, a large listed company, has two divisions. The first, the MoneyMint division produces coins and notes for the national exchequer and generates 80% of the company’s revenues. The second, the LunarMint division, manufactures a brand of sweets which are very popular with traders in the financial markets. The company is considering disposing of its LunarMint division. The LunarMint business is no longer viewed as part of the core business of the MandM Company. The Chief Executive Officer commented that he could never understand why the company entered into sweet-making in the first place. The LunarMint business is profitable and low risk, but has not been a high priority for investment.
Required:
Outline the issues that should be considered when disposing of the LunarMint division noting the risks that might be involved.
？？Section A – BOTH questions are compulsory and MUST be attempted？？
The Seal Island Nuclear Power Company has received initial planning consent for an Advanced Boiling Water Reactor. This project is one of a number that has been commissioned by the Government of Roseland to help solve the energy needs of its expanding population of 60 million and meet its treaty obligations by cutting CO2 emissions to 50% of their 2010 levels by 2030.
The project proposal is now moving to the detailed planning stage which will include a full investment appraisal within the financial plan. The financial plan so far developed has been based upon experience of this reactor design in Japan, the US and South Korea.
The core macro economic assumptions are that Roseland GDP will grow at an annual rate of 4% (nominal) and inflation will be maintained at the 2% target set by the Government.
The construction programme is expected to cost $1 billion over three years, with construction commencing in January 2012. These capital expenditures have been projected, including expected future cost increases, as follows:
Generation of electricity will commence in 2015 and the annual operating surplus in cash terms is expected to be $100 million per annum (at 1 January 2015 price and cost levels). This value has been well validated by preliminary studies and includes the cost of fuel reprocessing, ongoing maintenance and systems replacement as well as the continuing operating costs of running the plant. The operating surplus is expected to rise in line with nominal GDP growth. The plant is expected to have an operating life of 30 years.
Decommissioning costs at the end of the project have been estimated at $600 million at current (2012) costs. Decommissioning costs are expected to rise in line with nominal GDP growth.
The company’s nominal cost of capital is 10% per annum. All estimates, unless otherwise stated, are at 1 January 2012 price and cost levels.
Required:
Produce a preliminary briefing note which, on the basis of the above information, includes:
(i) An estimate of the net present value for this project as at the commencement of construction in 2012. (11 marks)
(ii) A discussion of the principal uncertainties associated with this project. (7 marks)
(iii) A sensitivity of the project’s net present value (in percentage and in $), to changes in the construction cost, the annual operating surplus and the decommissioning cost. (Assume that the increase in construction costs would be proportional to the initial investment for each year.) (6 marks)
(iv) An explanation of how simulations, such as the Monte Carlo simulation, could be used to assess the volatility of the net present value of this project. (4 marks)
Note: the formula for an annuity discounted at an annual rate (i) and where cash flows are growing at an annual rate (g) is as follows:
全面小康，覆盖的人口要全面，是（）。
全面小康，覆盖的区域要全面，是（）。
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