The repurchase rate is 3.60% on a loan of 2 days for which $1,000,000 par value of a bond is sold to the lender at par. What is the repurchase price? A. $1,000,180 B. $1,000,200 C. $1,000,360 D. $1,000,480
Is it B?
I’m getting an answer close to B. AliMan how did you go about it?
The loan is for 2 days, and the annual rate would be 3.6% (2/365)*0.036 = 0.000197 Calculate the interest that should be added on (it’s add-on interest since the bond is sold at par) 0.000197*1,000,000 = 197.26 ~ 200 So the answer I got was B, 1,000,200. Sound about right?
That’s what I did also
Yup, that’s what I did.
When I have done repo trades, they are effectively money market transactions on bonds which uses 360 days. If you use 360 day basis, you get B the correct answer exactly.
yes the day count convention for bond is 360 days