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After
dealing with many projects, he now wants to the expansion of
the business. For the expansion of his business, he decides to
buy some commercial space at Block-E, Bashundhara. After
analyzing some real estate companies, he finds a compatible
place named Suvastu Properties Ltd which is the finest real
estate companies is the owner of ongoing projects in Block-E,
Bashundhara. So, he wants to make a contract with Suvastu
Properties Ltd. After discussion between both parties, Suvastu
Properties Ltd decides to settle the loan at 10 crore. MR Mahin
has not enough funds to buy the space. So, MR Mahin wants to
take a loan from Dhaka Bank for a 30 years to finance the full
amount to buy the space at a floating rate. The lender gives
some terms and condition on which MR Mahin gives his
consent .Dhaka Bank provides flexible options to choose one
based on a floating rate mortgage loan.
Loan Terms:
1. Loan amount= 8 crore
2. Loan Term= 30 years
3. Initial Interest Rate= 10%
4. Payment reset each year
5. Points= 2%
6. Margin= 3%
7. Fully amortizing, negative amortization is allowed.
The loan will be repaid after 5 years .
Forward Rate for 5 years : BOY 2 : 10%, BOY 3: 11.5%,
BOY 4: 13%, BOY 5= 14%.
=702057.26*10.811+ 935568.46*10.811*.8282+1095885.73*10.811*.68590+
1273063.51*10.811885680=1428518.85*.4705*10.811+ 105316000.7*.3896
=80207814.82
PV at 21%,
702057.26*MPVAF21%%12m+ 935568.46*MPVAF21%,12m*MPV21%, 12m+
1095885.73* MPVAF21%12m* MPVF21%,24m + 1273063.51* MPVAF21%,
12m*MPVF21%, 36m + 1428518.85* MPVAF21%, 12m * MPVF21%, 48m +
105316000.7*MPVF21% , 60m
= 702057.26*10.74+935568.46*10.74*.8121+ 1095885.73*10.74*.6595+
1273063.51*10.74*.5356+ 1428518.85*10.748.4349+ 105316000.7*.3531
=67838723.76
= 78400000
Calculation of Adjusted Rate Mortgage
Year BOY Int. PMT Interest Monthly Annual EOY
Rate Amortization Amortization
1 8000000 10% 702057.26 666666.67 35390.59 444702.87 79555297.13
= 78400000
PV at 13%
702057.26*MPVAF13%12m+ 882611.79*MPVAF13%,12m*MPV13%, 12m+
975334.52* MPVA13%12m* MPVF13%,24m + 1068888.79* MPVAF13%,
12m*MPVF13%, 36m + 1131520.86* MPVAF13%, 12m * MPVF21%, 48m +
105316000.7*MPVF13% , 60m
=81877294.62
PV at 16%
702057.26*MPVAF16%12m+ 882611.79*MPVAF16%,12m*MPV16%, 12m+
975334.52* MPVA16%12m* MPVF16%,24m + 1068888.79* MPVAF16%,
12m*MPVF16%, 36m + 1131520.86* MPVAF16%, 12m * MPVF16%, 48m +
105316000.7*MPVF16%,60m
= 73318730.89
Decision:
Borrower’s Perspective: After calculating all opportunities we
can tell that ARM is the best alternative for MR Mahin due to
lowest yield as MR Mahin is the borrower of the loan. So ,MR
Mahin is facing a low interest burden and payment as well as
the cost of financing is also low.
Lender’s Perspective: Based on the calculating data, we call tell
that for Dhaka Bank the PLAM is the best alternative due to
highest yield as Dhaka Bank is the lender of the bank.