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Unformatted text preview: You will create long and short positions by entering into repos and reverse repos. As-sume there is no haircut. We have shown in the class that the initial cash ﬂows for these transactions are zero. (1.3) How much is the interest you need to pay back for the repo? How much is the interest you receive for the reverse repo? Suppose after 6 months, the Treasury bond yield has increased by 25 bp, while the corporate bond yield has increased by 10 bp. Note that the maturities have shrunk by 6 months, and both bonds have just paid coupons. You unwind the positions. 1 (1.4) How much is the coupon you receive for the repo? How much is the coupon you deliver for the reverse repo? (1.5) How much is net cash inﬂow after you unwind long position? How much for the short position? (1.6) Overall, do you make a proﬁt or a loss? How much? Alternatively, suppose after 6 months, both yields shift up by 15 bp. (1.7) How much is the proﬁt or loss? 2...
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This note was uploaded on 10/06/2011 for the course FIN 448 taught by Professor Weiyang during the Spring '10 term at Rochester.
- Spring '10