The Bank PK enters into a Repo for 9 days with Bank JJ in 6% Government Bonds 2022 for an amount of 20 crore. The other relevant details are as…
CA Final · Advanced Financial Management · RTP · November 2024
The Bank PK enters into a Repo for 9 days with Bank JJ in 6% Government Bonds 2022 for an amount of 20 crore. The other relevant details are as follows: First Leg Payment (Start Proceed) 20,00,67,500 Second Leg Payment (Repayment Proceed) 20,03,17,590 Initial Margin 1.25% Days of accrued interest 240 Assume 360 days in a year. Calculate: (a) Repo Rate (b) Dirty Price and (c) Clean Price
Suggested Answer and Working Notes:
(1) Second Leg = Start Proceed x (1+Repo Rate x No. of days / 360) 20,03,17,590 = 20,00,67,500 x (1+Repo Rate × 9 / 360) 1.00125 = (1+Repo Rate x 9 / 360) Repo Rate = 0.05 = 5% (2) First Leg (Start Proceed) = Nominal Value x (Dirty Price / 100) x (100-Initial Margin / 100) 20,00,67,500 = 20,00,00,000 x (Dirty Price / 100) x (100-1.25 / 100) 10003.375 = 98.75 x Dirty Price Dirty Price = 101.30 (3) Dirty Price = Clean Price + Interest Accrued 101.30 = Clean Price + 100 x (240 / 360) x 6% Clean Price = 97.30
Topics: Security Valuation
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