Template:M summ GMRA 2(pp): Difference between revisions
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[[Repurchase Price - GMRA Provision|So]] the price at which you buy the bonds back is the price at which you bought them (the {{gmraprov|Purchase Price}}), plus the time value of your trade. Thus, the {{gmraprov|Seller}} in a repurchase {{gmraprov|Transaction}} retains the price risk of the bonds. If she sells at 100, for a month, with a {{gmraprov|Pricing Rate}} of 10% — bear with me: these numbers are not meant to sound realistic but to accommodate the [[JC]]’s well-documented struggles with arithmetic — then the {{gmraprov|Repurchase Price}} at the end of that month will be ''100 + (10 * 30/360)'' = 100.833. | [[Repurchase Price - GMRA Provision|So]] the price at which you buy the bonds back is the price at which you bought them (the {{gmraprov|Purchase Price}}), plus the time value of your trade. Thus, the {{gmraprov|Seller}} in a repurchase {{gmraprov|Transaction}} retains the price risk of the bonds. If she sells at 100, for a month, with a {{gmraprov|Pricing Rate}} of 10% — bear with me: these numbers are not meant to sound realistic but to accommodate the [[JC]]’s well-documented struggles with arithmetic — then the {{gmraprov|Repurchase Price}} at the end of that month will be ''100 + (10 * 30/360)'' = 100.833. | ||
The {{gmraprov|Seller}} must repurchase the bond for 10.833 regardless of the market price at which the bond is trading at the time. Thus the bond functions like collateral for a loan of cash, which must be repaid with interest. Should the bond move in value against the cash repayment obligation, the {{gmraprov|Margin Maintenance}} provisions kick in to allow the parties, as they wish, to call for [[margin]]. | |||
Latest revision as of 10:40, 30 June 2020
So the price at which you buy the bonds back is the price at which you bought them (the Purchase Price), plus the time value of your trade. Thus, the Seller in a repurchase Transaction retains the price risk of the bonds. If she sells at 100, for a month, with a Pricing Rate of 10% — bear with me: these numbers are not meant to sound realistic but to accommodate the JC’s well-documented struggles with arithmetic — then the Repurchase Price at the end of that month will be 100 + (10 * 30/360) = 100.833.
The Seller must repurchase the bond for 10.833 regardless of the market price at which the bond is trading at the time. Thus the bond functions like collateral for a loan of cash, which must be repaid with interest. Should the bond move in value against the cash repayment obligation, the Margin Maintenance provisions kick in to allow the parties, as they wish, to call for margin.