Question 1
Multiple ChoiceHarada Capital Group acquired a portfolio of industrial properties with a total value of THB4.20 billion and financed the purchase with a mortgage loan of THB3.10 billion. The mortgage agreement requires the firm to maintain a maximum loan-to-value (LTV) ratio of 0.70.
Eighteen months later, the property portfolio declined in value to THB3.40 billion, while the outstanding mortgage remained unchanged.
To comply with the LTV covenant, by how much does Harada need to reduce its mortgage liability?
Explanation
LTV = Mortgage liability / Portfolio value.
To meet the required LTV:
Required mortgage liability = 0.70 × THB3.40 billion = THB2.38 billion
Excess mortgage = THB3.10 billion − THB2.38 billion = THB0.72 billion, or THB720 million
If partial repayment has already occurred and current liability is THB2.38825 billion, then:
Reduction required = THB2.38825 billion − THB2.38 billion = THB8.25 million