On January 2, 20X5, Community Bank entered into a repurchase agreement with Small Town Bank to...

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On January 2, 20X5, Community Bank entered into a repurchase agreement with Small Town Bank to fund its short-term funding need. Community Bank has a correspondent bank account (a due from account) at Small Town Bank. Assume that Community Bank "sold" a 6%, $2,000,000 par value U.S. Treasury security under a 14-day repurchase agreement. The agreement requires a 2% collateral margin. The repurchase agreement states that Small Town Bank will advance $2,000,000 to XYZ Bank on January 2, 20X5, and that XYZ Bank will be required to pay back $2,004,000 on January 15, 20X5. A. What is Community Bank's cost of funds for this transaction, assuming a 365-day year? B. Under the terms of the agreement, what is the minimum fair value of the assets required to be pledged by Community Bank? On January 2, 20X5, Community Bank entered into a repurchase agreement with Small Town Bank to fund its short-term funding need. Community Bank has a correspondent bank account (a due from account) at Small Town Bank. Assume that Community Bank "sold" a 6%, $2,000,000 par value U.S. Treasury security under a 14-day repurchase agreement. The agreement requires a 2% collateral margin. The repurchase agreement states that Small Town Bank will advance $2,000,000 to XYZ Bank on January 2, 20X5, and that XYZ Bank will be required to pay back $2,004,000 on January 15, 20X5. A. What is Community Bank's cost of funds for this transaction, assuming a 365-day year? B. Under the terms of the agreement, what is the minimum fair value of the assets required to be pledged by Community Bank?

Answer rating: 100% (QA)

A To calculate Community Banks cost of funds for this transaction we need to find the effective inte... View the full answer