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  • repo rate.

    hi all

    how would a person use spot rate and forward rate to calculate the repo rate of a t bill . is it right that we first find the spot price and then the forward price. find the cost associated with the bill and use it to find the repo rate. if some one could explain it with an example it would be helpful .

    cheers
    pretty

  • #2
    Originally posted by pretty_aussie
    hi all

    how would a person use spot rate and forward rate to calculate the repo rate of a t bill . is it right that we first find the spot price and then the forward price. find the cost associated with the bill and use it to find the repo rate. if some one could explain it with an example it would be helpful .

    cheers
    pretty
    I'm not exactly sure with your terminology, but if this is the stuff covered in the FM exam, I guessing that repo rate is the same as yield rate, (Implied Repo Rate = IRR button on my calculator?) then you solve (1+i)^2 = (1+spot rate)(1+forwards rate) for i in the case of 2 years. When you say forwards price, I am thinking the price of a forwards contract so I'm not exactly sure what you are asking.
    Whether you are the lion or the gazelle, when the sun comes up, you better be running.

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