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FRM Part II · FRM Exam Part II · Repurchase Agreements and Financing

A cash investor enters a 30-day repo, lending USD 50,000,000 against Treasury collateral at a repo rate of 4.80% per annum on an actual/360 basis. What is the repurchase price the borrower must pay at maturity?

The repurchase price is USD 50,200,000. Interest is the principal times the rate times days over 360, which is 50,000,000 x 4.80% x 30/360 = USD 200,000, added to the cash lent. A 365-day basis would give a different, incorrect figure.

  1. AUSD 50,200,000Correct
  2. BUSD 50,240,000
  3. CUSD 50,197,260
  4. DUSD 52,400,000

Explanation

Interest = 50,000,000 x 4.80% x 30/360 = 200,000. Repurchase price = 50,200,000. Using 365 days would give 197,260, a wrong day count for this convention. Using 4.80% x 30/30 would be wrong too.

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