Question

4. Titleist Corporation arranged a repurchase agreement in which it purchased securities for $3,750,000 and will sell the securities back for $3,780,000 in 50 days. What is the yield (or repo rate) to Titleist Corporation?

Answer 1

Answer:

5.688%

Explanation:

Given that

Purchase securities = $3,750,000

Sale value of securities = $3,780,000

Number of days given = 50 days

So, the formula to compute the repo rate is shown below:

Yield or repo rate is

= (Sale value of securities - purchase price) ÷ (Sale value of securities) × 360 days ÷ 50 days

= ($3,780,000 - $3,750,000) ÷($3,780,000) × 360 days ÷ 50 days

= 0.0079 × 7.2

= 5.688%

W\e assume the 360 days in a year