Suppose you enter into two transactions (with two different counterparties) at the same time. The first transaction is a repo on a 1,000,000 (in par value) Treasury bond for 30 days. The bond's current (clean) price is $970,000. The bond's coupon rate is 8% per year, payable twice a year (i.e., each time it pays 4%). The most recent coupon payment date was 90 days ago. The repo interest rate is 2.50% p.a. The second transaction is a reverse repo on the same bond for 30 days. The reverse repo interest rate is $2.60% p.a. 

Assuming a 360-day year, what is the amount of payoff that you will get (from the two transactions combined) at the end of the two repos' lives?

Will you gain or will you lose?

Answer rating: 100% (QA)

To calculate the payoff from the two transactions lets break it down 1 Repo Transaction You borrowed 970000 for 30 days at a repo interest rate of 250 ... View the full answer