A bank agrees a repurchase agreement (Repo) with its prime broker using £30 million of Mortgage Backed Securities as collateral for a period of 50 days. The prime broker levies a haircut of 10 per cent and charges an annual Repo rate of 4.5 per cent. What is the price at which the bank will repurchase the £30 million MBS at the end of 50 days when the Repo rate interest applies only on the sum of money being lent by the prime broker ? Use a 360 day-count.

A bank agrees a repurchase agreement (Repo) with its prime broker using £30 million of Mortgage Backed Securities as collateral for a period of 50 days. The prime broker levies a haircut of 10 per cent and charges an annual Repo rate of 4.5 per cent. What is the price at which the bank will repurchase the £30 million MBS at the end of 50 days when the Repo rate interest applies only on the sum of money being lent by the prime broker ? Use a 360 day-count.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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