Question

18. Suppose the Hedge fund in 17 financed their $100 million of MBS by using seven-day repurchase agreements in addition to their investors' capital. Assuming they borrow the maximum amount, the required haircut is 10%, and the interest rate is 2% per year, which of the following is closest to how much interest they will owe at the end of the first seven-day term? (a) $30,000 (b) $35,000 (c) $38,000 (d) $40,000 (e) None of these are within $5,000

Answer 1

Answort to know that andavast coed · (marimim borrowding amoum) x Aunino Duterest Pole) x Ropo form No.of clays in a year f8 tffis,com mnd to wculto , Maximum borrowing Amount * Maximum barrocoina Mrowint. Vokie Limoncody ci- Abirecit rate) $100 million (-10%) = $100 million x 0.90 Maxirnem borowing Amount: $90 million : Repo tom, tday Annual Interest rate : 2% - Tulorest Oued - $ 90 milion * 3% * zbo $1.8 milion x )) $ 0.035 million it Interest owed $35,000 ... $35,000 interest will be owed at the end of first selenday tom. From giver options, option() is correct Le $35.000