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Hi John I found this MCQ question so weird thus I had to memorise it. I don’t remember what question number it was but it goes like ” Fad co is entering into a sale and repurchase agreement on the money market. The co has agreed to sell $10m of trial balance for $9.60m and will buy them back in 50 days time for $9.65m . Assume 365 days. What is the implicit annual interest rate.
(A) 0.50%
(B) 0.52%
(C) 3.65%
(D) 3.80%The interest of 0.05M/9.60M over a period of 50 days.
Strictly therefore the annual interest = (1 + (0.05/9.60)) ^ (365/50) ) – 1 = 0.0386 (3.86%)
If you have remembered everything perfectly then probably what the examiner has done is 0.05/9.60 x (365/50) = 0.0380 (3.80%)
(But both ways end up really giving the answer as D)
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