Question 3: ODA and Subsidized Rates (11 marks)

A. Suppose Canadian Govt is considering a loan to Bangladesh Govt apart from its aid so far (up to mid September of last year Canada gave Bangladesh $4.5M and committed to $9.63 million in humanitarian assistance funding to aid partners in Burma and Bangladesh to help conflict-affected people, including the Rohingya). This loan would be of $60 million that will be interest-only for the first 6 years. Then amortization period would start and the loan has to be repaid in 8 years. The interest rate will be 6% and all the payments are semi-annual.

Calculate the following for this loan:

i) Payment during the grace period (interest-only period).

ii) Payment during amortization period.

iii) Present value of all the payments made (use annual discount rate of 10%).

iv) Grant element.

v) Conclude whether the loan would be qualified as ODA. (9 marks)

B. State the relationship between grant element and subsidized rate of interest. (2 marks)