Question

29. A bank needs to borrow £5million from the central bank. The bank enters into a repo agreement with the central bank for Z days at an interest rate of 0.6% per annum. The bank sells a portfolio of treasury securities worth £5million. What would be the repurchase value of this repo? (10 Marks) 30. Calculate the duration of the following debt security and discuss how duration changes with YTM, maturity, coupon rate and face value. This debt security has a coupon rate of 5% payable semiannually, YTM is 7% per annum, face value of £1,000 and two years to maturity. (10 Marks)

Answer 1

Ans to Q-29 Particulars Funds borrowed Period Interest p.a Interest incurred Repurchase value Amount 5,000,000.00 A 7 B 0.60% C days 575.34 D-A* B*C/365 5,000,575.34 E-D+A Solutiorn Ans to Q-30 Interest p.a Compounding YTM Face Value Period 5% Period C:A*B Cashflow 25 25 25 25 1000 per year PV at 3.5% PV 7% 1000 A 25 0.966184 24.15459 50 0.933511 46.67554 75 0.901943 67.6457 100 0.87144287.14422 0.871442 871.4422 Years 4 1097.062 B Duration Years 1.097 B/A