An Introduction to Repo Markets, Third Edition

EXERCISES

Exercise 1

Repo versus money market alternatives

Rank the following money market instruments in order of highest return.

a. A 12-month $ certificate of deposit (CD) paying interest at maturity at a rate of 7.25%, accruing on an act/360 basis.

b. A 12-month PTE domestic term repo paying 7.27%, accruing on an act/365 basis.

c. A 12-month $ repo paying interest quarterly at a rate of 7.20%, accruing on an act/360 basis.

d. A Spanish bono with 1 year to maturity, a coupon of 11.00% and a price of 103.16 (accruing at act/act).

e. A UK 1-year T-bill offered at a discount rate of 7.125%.

 

Exercise 2

Bond basics

A UK Government bond with a coupon of will be redeemed at par on 15 May 2007. What is the price of the bond on 16 May 1998 if the yield to maturity is 9%?

If the semi-annual yield to maturity of a bond is 12.38%, what is:

a. The equivalent annual yield to maturity?

b. The equivalent quarterly yield to maturity?

The yield on a UK Government bond is 11.5% while the yield on a sterling eurobond is 11.75%. Which paper is offering the better return?

 

Exercise 3

A trader wishing to finance his long bond position will effect a:

a. reverse repo transaction and pay the repo rate;

b. repo transaction and receive the repo rate;

c. repo transaction and pay the repo rate;

d. reverse repo transaction and receive the repo rate.

The three main forms of delivery are, in order of safety for the cash ...