Mock test 2

AMITAG1990
Finance Junkie
Posts: 89
Joined: Sat Sep 22, 2012 12:35 pm

Mock test 2

Postby AMITAG1990 » Thu Nov 15, 2012 5:56 pm

A Multi Year Restructuring Agreement for a $300 million loan with a sovereign has the following features:

Maturity extended to five years
Principal amortization for four years at 25% per year
Grace period of 1 year
Up-front fee = 1.5%
New loan rate = 6%
Bank’s discount rate = 8%

If the original loan had a value of $306 million, the concessionality attached to this MYRA is closest to:
Choose one answer.
a. $18.99 million Correct
b. $15.68 million Incorrect
c. $17.43 million Incorrect
d. None of these Incorrect
The correct answer is $18.99 million.

Present value of restructured loan = $300 * 0.015 + [$0 + $300*(0.06)] / 1.08 + [$75 + $300*(0.06)] / 1.082 + [$75 + $225*(0.06)] / 1.083 + [$75 + $150*(0.06)] / 1.084 + [$75 + $75*(0.06)] / 1.085 = 287.01 million
Therefore, concessionality = 306 – 287.01 = $18.99 million
Hence option ‘A’ is correct.

Please explain this, i just cann't understand why new loan rate is applying every year.. It should be just 1 time income.

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