What is calculated by subtracting the repurchase price from the selling price, dividing by the selling price, and multiplying by 360 divided by the number of days to maturity_____________?
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Answer: A. repurchase agreement yields
Explanation
The repo yield formula computes the annualized return on a repurchase agreement using sale price, repurchase price, and term. This mathematical calculation accounts for the financing cost and the exact number of days until repurchase. Multiplying by 360 divided by maturity days standardizes the return into an annual percentage yield figure. Repurchase agreements function as collateralized short-term loans where securities serve as the underlying backing. The difference between the initial selling price and the higher repurchase price represents the lender's interest return. Money market calculations conventionally utilize a 360-day year convention for annualized yield computations.
Institutional cash managers calculate repo yields precisely to compare short-term investment alternatives. Borrowers evaluate these yields carefully to secure the lowest possible short-term wholesale funding costs. Automated trading systems execute these yield formulas instantly to price multi-billion-dollar daily transactions. Purchase agreement yields is an imprecise variation that lacks standard financial market nomenclature precision. Repurchase yields is an abbreviated term missing the formal agreement specification required in financial formulas. Transaction yields is an overly broad label that fails to identify specific repurchase agreement calculations.
- Subject
- Accounting and Finance
- Category
- Finance
- Topic
- —
- Difficulty
- medium
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