- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 4. Fixed-Income Markets for Corporate Issuers
- Subject 2. Repurchase Agreements

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**CFA Practice Question**

A dealer who needs to finance an inventory of Treasury securities agrees to sell the securities to a lender for $9,998,195 and repurchase them the next day. The repo rate for this transaction is 6.50%. What is the repurchase price?

B. $10,000,000

C. $10,001,805

A. $9,998,195

B. $10,000,000

C. $10,001,805

Correct Answer: B

Repurchase price = original price x (1+m(r/360)) = $9,998,195 x (1+0.065/360) = $10,000,000

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**User Contributed Comments**
8

User |
Comment |
---|---|

danlan |
Use 360 instead of 365 |

gaur |
i=6.5/360, PV:$9,998,195, n=1 Calculate for FV = 10,000,000 |

Wheels |
why do these calculations use 360 instead of 365? |

mchu |
assuming a 360-day year consisting of twelve 30-day months |

Rotigga |
Any government securities assume a 360-day year |

gazelle |
Thank you gaur for the shortcut! |

fanfanli |
360 Day count is used since Repos are considered money market transactions and hence use money market assumptions |

Renaud1807 |
Thanks fanfanli very good explanation |