Response to the following:
1. If the overnight fed funds rate is quoted as 2.25 percent, what is the bond equivalent rate? Calculate the bond equivalent rate on fed funds if the quoted rate is 3.75 percent.
2. Suppose a bank enters a repurchase agreement in which it agrees to buy Treasury securities from a correspondent bank at a price of $24,950,000, with the promise to buy them back at a price of $25,000,000.
a. Calculate the yield on the repo if it has a 7-day maturity.
b. Calculate the yield on the repo if it has a 21-day maturity.