i. Suppose at t = 0 you think that G - Sec 10-year maturity on - the run bond is under-priced, and you bet that its price will increase in the future. You don't have the bond in your hand, but you know there is a repo-market where you can take your position. Let the price of the bond is Rs. 97.85. Let the repo - dealer charges a hair - cut of Rs. 0.25. Say after time t = 10 days, the price of the bond becomes Rs. 98.25. Find the realized return of the bond. (Use n/360 notation). ii. What if the price reaches 98.25 after t = 180 days. Can you still make profit?

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
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i. Suppose at t = 0 you think that G - Sec 10-year maturity on - the run
bond is under-priced, and you bet that its price will increase in the
future. You don't have the bond in your hand, but you know there is a
repo-market where you can take your position. Let the price of the bond
is Rs. 97.85. Let the repo - dealer charges a hair - cut of Rs. 0.25. Say
after time t = 10 days, the price of the bond becomes Rs. 98.25. Find the
realized return of the bond. (Use n/360 notation).
ii. What if the price reaches 98.25 after t = 180 days. Can you still make
profit?
Transcribed Image Text:i. Suppose at t = 0 you think that G - Sec 10-year maturity on - the run bond is under-priced, and you bet that its price will increase in the future. You don't have the bond in your hand, but you know there is a repo-market where you can take your position. Let the price of the bond is Rs. 97.85. Let the repo - dealer charges a hair - cut of Rs. 0.25. Say after time t = 10 days, the price of the bond becomes Rs. 98.25. Find the realized return of the bond. (Use n/360 notation). ii. What if the price reaches 98.25 after t = 180 days. Can you still make profit?
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