[ 2009 FRM Sample Exam ] Quantitative Analysis Q13 agreement, following, principal, schedule, payment

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13. Assume that Akshaya Bank has a loan with a principal amount of USD 100 million outstanding to Brazil, due 6 months from now, and the loan has a present value of USD 100.51 million. Brazil declares its inability to meet its payment schedule and Akshaya Bank immediately negotiates a multi-year restructuring agreement with the following terms:

Principal Repayment: Bullet to 2 years.

Loan Rate: 6% fixed, annual pay.

Upfront fee: 50 basis point.

Akshaya Bank's discount rate: 8%

Guarantees and Options: None.

Based on the given information, Akshaya Bank's concessionality is close to:

A. USD 96.93 million

B. USD 4.08 million

C. USD 96.43 million

D. USD 3.58 million

lalamei

 

Correct answer is Dfficeffice" />

A is incorrect. Because this is the present value of the restructured loan (and not the concessionality).

B is incorrect. Because the calculation excludes the upfront fee.

C is incorrect. Because this is the present value of the restructured loan excluding the upfront fee.

D is correct.

PV of the restructured loan = [USD 100 x 0.005] + [(USD 0 + (USD 100 x 0.06)) / 1.08] + [(USD 100 + (USD 100 x 0.06)) / 1.082] = 0.50 + 5.55 + 90.88 = USD 96.93 million.

Concessionality = USD 100.51 ? USD 96.93 = USD 3.58 million.

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