Financial Risk Manager Part 2
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A financial institution acquires a bond when it pays its coupon. After three months, the institution decides to engage in a repurchase agreement (repo) to quickly obtain funds. The bond and the terms of the repurchase agreement are detailed in the table below:
| Notional (USD) | Coupon (semi-annual) | Current bond price (USD) | Repo haircut | Repo interest rate |
|---|---|---|---|---|
| 100,000 | 5% | 98 | 5% | 3% |
The repurchase agreement is set to mature in six months. What is the financial institution’s expected cash outflow at the end of the repurchase agreement term?