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))

Expert Solution

jeff jeffy answered 2 months ago

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

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