Bank A enter into a Repo for 14 days with Bank B in 10% Government of India Bonds 2028 @ 5.65% for 8 crore. Assuming that clean price (the price…
CA Final · Advanced Financial Management · MTP · May 2024
Bank A enter into a Repo for 14 days with Bank B in 10% Government of India Bonds 2028 @ 5.65% for 8 crore. Assuming that clean price (the price that does not have accrued interest) be - 99.42 and initial Margin be 3% and days of accrued interest be 272 days. You are required to calculate: (i) Dirty Price (ii) Approximate Repayment amount at maturity. Note: (1) Consider 360 days in a year. (2) Round off calculations upto 2 decimals points.
Suggested Answer and Working Notes:
(i) Dirty Price = Clean Price + Interest Accrued = 99.42 + 100 × (10/100) × (272/360) = 106.98 (ii) First Leg (Start Proceed) = Nominal Value x (Dirty Price / 100) x ((100-Initial Margin) / 100) = 8,00,00,000 x (106.98 / 100) x ((100-3) / 100) = 8,30,16,480 Second Leg (Repayment at Maturity) = Start Proceed x (1 + Repo rate x (No. of days / 360)) = 8,30,16,480 x (1 + 0.0565 × (14/360)) = 8,31,98,885.65 (Approx.)
Topics: Security Valuation
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