And work out eight. We're going to calculate the expected return to equity holders for the following clo over a seven year hold we're going to assume that there are no par build or fees involved.

So the first thing we're going to do is we're going to calculate our excess spread here and that's going to be equal to the war of 3.27% minus the weighted average cost of liabilities.

and that gives us 1.72 The next thing that we're going to do is calculate the equity cash flows that are result of both the investment in the clo by the equity holders as well as the return that is generated by that excess spread.

The first thing we're going to do is we're going to assume that the assets which total 400 have a 10% Equity stake.

And that gives us a negative 40 we're showing that as a negative 40 because it's an investment. So the next thing that we will do is calculate the equity cash flows on a yearly basis. So we're just using yearly here for Simplicity. So that's going to be the excess spread times the 400 and assets times the 90% That is funded by the debt.

It's actually the debt that's generating the return for the equity holders.

So the cash inflow on an annual basis is going to be equal to 6.2. And if I anchor these cells I can just copy this over for the total hold which is going to be seven years. So that's one two, three, four, five six seven and that gives me the cash inflow from the excess spread. Now when the clo is actually closed when the equity holders exercise their call option the par value the assets is going to be repaid and what the equity holders get to keep is the 10% that doesn't go back to the debt holders. So we have to add that 40 that we invested in the beginning to to the last cash flow because that's when it gets paid back. So what we'll simply add to this is again the 400 times the 10% Equity stake.

And that gives us the 46.2 in the final year. So to calculate the return here and I'm just showing my formulas here so that we can see where we get these numbers from.

Next we'll calculate the irr which is going to show the return of this investment from the initial investment all the way through the repayment in year 7.

And that's showing in irr of 15.5%