MFA enters into a 14-day Repo with MFB, facilitated by an independent agent, Bank C which charges a commission of 0.15% p.a. (on the nominal value…

CA Final · Advanced Financial Management · MTP · November 2026
MFA enters into a 14-day Repo with MFB, facilitated by an independent agent, Bank C which charges a commission of 0.15% p.a. (on the nominal value of securities). The Repo involves 10% Government of India Bonds 2028 at a repo rate of 5.65% for a nominal value of ₹ 8 crore. The clean price of the bond (i.e., excluding accrued interest) is 99.42. The initial margin requirement is 2%, and the number of days of accrued interest is 262 days. Required: (i) Overall what above arrangement is called. (ii) The dirty price of the bond. (iii) The amount of funds exchanged in the first leg of the Repo. (iv) Repayment at maturity. (v) The effective annualised cost of funds to MFA. Note: 1. Assuming 360 days a year. 2. Round off all the final computations nearest to the rupees and percentages upto four decimal points.

Suggested Answer and Working Notes:

(i) This arrangement is called the Tri-party Repo. (ii) Dirty Price = Clean Price + Interest Accrued = 99.42 + 100 × (10/100) × (262/360) = 106.70 (iii) First Leg (Start Proceed) = Nominal Value × (Dirty Price / 100) × ((100 - Initial Margin) / 100) = ₹ 8,00,00,000 × (106.70 / 100) × ((100 - 2) / 100) = ₹ 8,36,52,800 (iv) Second Leg (Repayment at Maturity) = Start Proceed × (1 + Repo rate × (No. of days / 360)) = ₹ 8,36,52,800 × (1 + 0.0565 × (14/360)) = ₹ 8,38,36,604 (v) To compute the effective annualized cost of fund to MFA, first we shall compute commission payable to Bank C Commission = ₹ 8,00,00,000 × 0.15% × (14/360) = ₹ 4,667 Total Cost of Borrowing = Repo Interest + Commission to Bank C = (₹ 8,38,36,604 - ₹ 8,36,52,800) + ₹ 4,667 = ₹ 1,83,804 + ₹ 4,667 = ₹ 1,88,471 Effective Cost of Funds for 14 days = 1,88,471 / 8,36,52,800 = 0.002253 i.e. 0.2253% Annualized Effective Cost = 0.2253% × (360/14) = 5.79% (approx.)

Topics: Financial Policy & Corporate Strategy

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