11. What is the difference between a repurchase agreement and a reverse repurchase agreement? 18. Who...

11. What is the difference between a repurchase agreement and a reverse repurchase agreement?

18. Who are the major issuers of and investors in money market securities?

7. You can purchase a T-bill that is 95 days from maturity for $9,965. The T-bill has a face value of $10,000.

Calculate the T-bill’s quoted yield.
Calculate the T-bill’s bond equivalent yield.
Calculate the T-bill’s EAR.

Solutions

Expert Solution

Ques 11

A repurchase agreement (repos or RPs) is an agreement involving the sale of securities by one party to another with a promise to repurchase the securities at a specified price and on a specified date in the future. Thus, a repurchase agreement is essentially a collateralized loan backed by the securities. The securities used most often in repos are U.S. Treasury securities (e.g., T-bills) and government agency securities . A reverse repurchase agreement (reverse repo) is an agreement involving the purchase of securities by one party from another with the promise to sell them back at a given date in the future.

Ques 18

the main issuers are government , financial institutions , large fund houses and corporates these mainly include:

T-bills
Federal funds
Repos
Commercial paper
Certificate of deposits
banker acceptances

the major investors are retail investors and financial institutional investors

the big broking firms actively trade in these securities

AN Individual can also open an account with these brokers to deal in these securities

Ques 7

Ques 1
quoted yield

i=	(10000-9965)/10000*360/95	1.326%

Ques 2
equivalent yield

i=	(10000-9965)/9965*365/95	1.349%

Ques 3
EAR =	(1+0.01349/(365/95))^365/95-1	1.356%

ekkarill92 answered 2 months ago

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