To help ease a continuing need for financing, a large financial service provider in is considering borrowing from insurance companies through repurchase agreements in addition to issuing bonds in public debt markets. Mr Smit the Head of trading, has proposed an entry into a repo agreement. He suggests that the company enters into an agreement to sell a 5 percent 15-year bond with a par value of N$ 1 million and a market value of N$ 97000 for N$ 940000 and to repurchase it in 120 days for N$ 950000.

a. Calculate the equivalent annualized repo rate for the 15-year bond

b. Indicate which bond will trade at a higher or lower price for a bond investor, and indicate whether each bond benefits the issuer or bondholder

b. Explain three (3) factors that would result in a lower repo rate