lender engages in a 15-day $1,000,000 reverse repo at a rate of 2.50%. The haircut is 2%. The current market value of the loan is $980,000. What rate of return did the lender earn on annualized basis? Use 360-day for annualization.
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A lender engages in a 15-day $1,000,000 reverse repo at a rate of 2.50%. The haircut is 2%. The current market value of the loan is $980,000. What
rate of return did the lender earn on annualized basis? Use 360-day for annualization.A $1,000.42
B $810.63
C $466.86
D $880.37
In a reverse repo, the borrower will have to will give the collateral to lender and the lender will pay the borrower a certain amount. Then the borrower will have to purchase back the collateral at a higher rate. This includes the interest.
The formula to determine amount borrowed is as follows:
Interest that the lender earns is calculated using the formula below:
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