2019 Spring Q17

ckevin2202ckevin2202
in Odo.FinReg

https://www.battleactsmain.ca/pdf/Exam_(2019_1-Spring)/(2019_1-Spring)_(17).pdf

Hi Graham, do you mind explain to me why there is a different payment at the 2nd row when calculating PV w/o margin and the margin (1.5M vs 2.5M)?

Comments

  • grahamgraham

    I've copied my solution to this problem below. See if that makes more sense. Note that:

    • TMF = Total Margin Factor
    • = (req'd margin) x (target cap to req'd ratio) x (risk cost of capital)

    For the PV without margin, the numbers in the row represent the amount paid in the year. But for the PV with margin, the numbers represent the payment remaining at the beginning of the year.

  • NycxBattleNycxBattle

    Are margins always treated as of they year end? What I am really trying to ask, do we always use full year duration when discounting margins?

  • Staff-T1Staff-T1

    You could use middle of year also

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