1. Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities...

1. Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $34,950,000, with the promise to buy them back at a price of $35,000,000.

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 16-day maturity. (For all requirements, use 360 days in a year. Do not round intermediate calculations. Round your answers to 5 decimal places. (e.g., 32.16161))

2. Suppose you purchase a T-bill that is 130 days from maturity for $9,710. The T-bill has a face value of $10,000.

a. Calculate the T-bill’s quoted discount yield.
b. Calculate the T-bill’s bond equivalent yield.

(For all requirements, use 360 days for discount yield and 365 days in a year for bond equivalent yield and effective annual return. Do not round intermediate calculations. Round your answers to 3 decimal places. (e.g., 32.161))

Solutions

Expert Solution

jeff jeffy answered 1 hour ago

Next > < Previous

Related Solutions

Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from...

Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $24,995,000, with the promise to buy them back at a price of $25,000,000. a. Calculate the yield on the repo if it has a 7-day maturity. b. Calculate the yield on the repo if it has a 21-day maturity.

A repurchase agreement, also known as a repo, is the sale of securities together with an...

A repurchase agreement, also known as a repo, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price, the difference effectively representing interest, sometimes called the repo rate. The party that originally buys the securities effectively acts as a lender. The original seller is effectively acting as a borrower, using their security as collateral for a secured cash...

Which of the following describes a ‘repo’? a- Where a bank agrees to buy certain assets...

Which of the following describes a ‘repo’? a- Where a bank agrees to buy certain assets from an institution for cash in return for being able to borrow from that institution in the future b- Where a bank sells some assets (e.g. bonds) and agrees to buy them back at a particular price after a set period of time c- Where a bank sells some assets (e.g. bonds) and agrees to buy them back at a particular price after a...

1. To raise money through a repurchase agreement what does a bank need to have? A....

1. To raise money through a repurchase agreement what does a bank need to have? A. Marketable securities B. Adequate equity capital C. Savings accounts 2. The federal funds market is best described as: A. a market for U. S. Treasury securities. B. a market for interbank borrowing and lending. 3. As of Dec 2019 the market cap of Bank of America was: A. less than the book value of equity. B. greater than the book value of equity.

18. The Bank of Canada will engage in a sale and repurchase agreement when it wants...

18. The Bank of Canada will engage in a sale and repurchase agreement when it wants to ________ reserves ________ in the banking system. a. increase; permanently b. decrease; temporarily c. increase; temporarily d. decrease; permanently 19. One problem with the too-big-to-fail policy is that it ________ the incentive for ___________ by banks. a. increases; moral hazard b. decreases; moral hazard c. increases; adverse selection d. decreases; adverse selection 20. Covenants such as those to discourage undesirable behaviour of borrowers...

On December 31, 2017, American Bank enters into a debt restructuring agreement with Blossom Company, which...

On December 31, 2017, American Bank enters into a debt restructuring agreement with Blossom Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $4,200,000 note receivable by the following modifications: 1. Reducing the principal obligation from $4,200,000 to $3,360,000. 2. Extending the maturity date from December 31, 2017, to January 1, 2021. 3. Reducing the interest rate from 12% to 10%. Assuming that the interest rate Blossom should use to compute interest...

On December 31, 2020, Green Bank enters into a debt restructuring agreement with Kingbird Inc., which...

On December 31, 2020, Green Bank enters into a debt restructuring agreement with Kingbird Inc., which is now experiencing financial trouble. The bank agrees to restructure a $1.1-million, 12% note receivable issued at par by the following modifications: 1.Reducing the principal obligation from $1.1 million to $0.88 million 2.Extending the maturity date from December 31, 2020, to December 31, 2023 3.Reducing the interest rate from 12% to 10% Kingbird pays interest at the end of each year. On January 1,...

On December 31, 2020, Tamarisk Bank enters into a debt restructuring agreement with Barkley Company, which...

On December 31, 2020, Tamarisk Bank enters into a debt restructuring agreement with Barkley Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $2,200,000 note receivable by the following modifications: 1. Reducing the principal obligation from $2,200,000 to $1,440,000. 2. Extending the maturity date from December 31, 2020, to January 1, 2024. 3. Reducing the interest rate from 12% to 10%. Barkley pays interest at the end of each year. On January...

On December 31, 2014, Merchant Bank enters into a debt restructuring agreement with Carson Company which...

On December 31, 2014, Merchant Bank enters into a debt restructuring agreement with Carson Company which is experiencing financial difficulties. The bank restructures a 12%, issued at par, $3,000,000 note receivable by: 1. Reducing the principal obligation from $3,000,000 to $2,400,000. 2. Extending the maturity date from December 31, 2014, to January 01, 2018 3. Reducing the interest rate from 12% to 10%. Carson Company pays interest at the end of each year. On January 1, 2018, Carson Company pays...

On December 31, 2017, American Bank enters into a debt restructuring agreement with Stellar Company, which...

On December 31, 2017, American Bank enters into a debt restructuring agreement with Stellar Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $4,000,000 note receivable by the following modifications: 1. Reducing the principal obligation from $4,000,000 to $3,200,000. 2. Extending the maturity date from December 31, 2017, to January 1, 2021. 3. Reducing the interest rate from 12% to 10%. Assuming that the interest rate Stellar should use to compute interest...

Subjects