Question

Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $23,950,000, with the promise to buy them back at a price of $24,000,000. a. Calculate the yield on the repo if it has a 6-day maturity. b. Calculate the yield on the repo if it has a 20-day maturity. (For all requirements, use 360 days in a year. Do not round intermediate calculations. Round your answers to 5 decimal places. (e.g., 32.16161)) Answer is complete but not entirely correct. Yield on the repo Yield on the repo 0.01253 % 0.03758 % %

Answer 1

Yield - Repurchase Perice – Selling Price Selling Price x 100 360 days x no. of days till maturity of repo = X 360 X 100 24 000 000 - 23950 000 23 950 000 50000 23 950 000 — * 360 x 100 12.52610% Vild Repurchase Price - Selling Price Selling Price x 100 360 days x no. of days till maturity of repo 24 000 000 - 23 950 000 X 360 x 100 23950000 20 X 360 X 100 50 000 23950 000 20 3.7578 3 %