Question

Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $22,950,000, with the promise to buy them back at a price of $23,000,000. a. Calculate the yield on the repo if it has a 5-day maturity. b. Calculate the yield on the repo if it has a 16-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)) a. b. Yield on the repo Yield on the repo < Prev 3 of 8 Next >

Answer 1

(a) Buying price or Present Value =   22950000
repurchase price or future value=   23000000
Days to Maturity   5
Yield on repo rate = [(future value/present value) – 1] x year/number of days   
((23000000/22950000)-1)*360/5  
0.1568627451  
in %=   15.68627%

Yield on repo is 15.68627%
  
(b) Buying price or Present Value =   22950000
repurchase price or future value=   23000000
Days to Maturity   16
Yield on repo rate = [(future value/present value) – 1] x year/number of days   
((23000000/22950000)-1)*360/16  
0.04901960784  
in %=   4.90196%

Yield on repo is 4.90196%