PTPTN is an organisation that provides student loan services in the country to students who are pursuing tertiary education. Due to the serious unemployment rate, many students who have taken loans from PTPTN have difficulties servicing the loan repayment. As a result, new eligible candidates may be deprived of the PTPTN loans in the future. The following are extracts of PTPTNs annual financial position:

Loan outstanding : RM500,000,000

Cash : RM 50,000,000

Total repayment received : RM 20,000,000

Operating expenses : RM 2,000,000

However, the total loans of new eligible applications are expected to increase to RM200,000,000 next year. Hence, it would be difficult for PTPTN to satisfy the eligible applicants who meet the criteria set due to the lack of cash flows and low repayment rate.

Required:

(a) Based on the above, discuss how PTPTN could utilise the fixed income securities to overcome its cash flow problems with an appropriate illustration. Discuss with 6 points. Provide example based on case.

(b) Discuss TWO (2) differences between straight bonds and asset-backed securities with an example each. Discuss 6 points with example and illustration.