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Template:M summ GMRA 2(pp): Difference between revisions
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Amwelladmin (talk | contribs) (Created page with "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...") |
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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]]. | |||