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<br />For every scenario generated by our propriety POB model, BofA also applies stochastic simulations to gain a
<br />deeper understanding of the potential performance of n structure, while also incorporating the impact of
<br />investment return volatility. The probability of success for the two financing scenarios above are presented in
<br />the table below — importantly, this model is able to help the City assess how changes in the CaIPERS discount
<br />rate would impact the performance metrics of a DOB (e.g., the City could test an "expected annual return" of
<br />6.0% versus 7.0%).
<br />In an additional step to help our POB clients understand the risks/potential benefits associated with POBS, our
<br />model stress tests the POB structure given various investment returns following issuance. The table below shows
<br />the expected PV savings under four sample investment return assumptions — one of which is a negative 20%
<br />investment return "shock" in the first year following the POB issuanco. As summarizod below, ouch of Scenario
<br />1 (50%) and Scenario 2 (90%) still would provide a PV benefit it in the event of that first year loss it there were
<br />7"/o returns in subsequent years. To the extent the City would like to stress test or change investment return
<br />parameters, BofA would be able to quickly incorporate such feedback and generate tangible insights as we have
<br />done for the cities of Riverside, El Cajon, Gardena and Downey.
<br />BofA Stochastic Simulation Analysis and Stress Testing
<br />Expected Annual Return
<br />7.04'.
<br />7 0k
<br />Annual Volatility
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<br />11 U
<br />Probability of Success (Simulation)
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<br />Stress Testy
<br />PV Benefit
<br />% of Par
<br />PV Benefit
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<br />Base: 7%Annual Returns
<br />5122,17£,000
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<br />32AIA
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<br />Test 2. 6^A Annual Returns
<br />$73,G£O,OOO
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<br />Test 3:6% Annual Returns
<br />$44,£GG,000
<br />12 537
<br />$79,SOO,OOO
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<br />Council 23 — 110 5/18/2021
<br />Page 11 BofA SECURITIES ��
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