Answered: a. Calculate the yield on the repo if…

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 15-day maturity.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of
$25,950,000, with the promise to buy them back at a price of $26,000,000.
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 15-day maturity.
(For all requirements, use 360 days in a year. Do not round intermediate calculations. Round your percentage answers to 5
decimal places. (e.g., 32.16161))
Yield on the repo
a.
%
b.
Yield on the repo

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