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Answer: $180,414,000
## Calculation Explanation To calculate the repurchase price in a repo agreement, we use the formula: **Repurchase Price = Original Price × (1 + (Repo Rate × Days/360))** **Given:** - Original invoice price = USD 180,000,000 - Repo rate = 0.90% = 0.009 - Period: June 1, 2015 to September 1, 2015 **Step 1: Calculate the number of days** From June 1 to September 1 is exactly 3 months. Since June has 30 days, July has 31 days, and August has 31 days: - Days = 30 + 31 + 31 = 92 days **Step 2: Calculate the interest** Interest = Original Price × Repo Rate × (Days/360) Interest = 180,000,000 × 0.009 × (92/360) Interest = 180,000,000 × 0.009 × 0.255556 Interest = 180,000,000 × 0.0023 Interest = $414,000 **Step 3: Calculate repurchase price** Repurchase Price = Original Price + Interest Repurchase Price = 180,000,000 + 414,000 = $180,414,000 Therefore, the correct repurchase price is **$180,414,000**, which matches option C.
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At initiation of a repurchase agreement (repo), counterparty A sells a security to counterparty B for settlement on June 1st, 2015 at an invoice price of USD 180 million. At the same time, counterparty A agrees to repurchase the security three months later, for settlement on September 1st, 2015, at a purchase price equal to the original invoice price plus interest at a repo rate of 0.90%. Using the actual/360 convention of most money market instruments, which is nearest to the repurchase price?
A
$414,000
B
$180,000,000
C
$180,414,000
D
$181,620,000
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