Funding Positions. As a junior trader at your investment bank you quickly and cost- effectively need to fund overnight a $100m position in the on-the-run 5Y UST note. On Monday, March 16, 2009, this note, which pays a 3% coupon and matures on 02/15/13, is quoted at a bid-ask of 100 21/32 - 22/32. (ALL PART OF ONE QUESTION)

(a) What should the invoice price of this note be? In your computation of accrued interest, please note that February is an odd month.

(b) The general-collateral repo rate is 1.25% on 03/16/09. If the market required a 2% margin, how much of the purchase price could you have borrowed in the repo market, and how much interest would you have paid for a one-day loan? What would have been your equity stake in the position?

(c) Can general repo rates ever become negative? Why or why not?

(d) As an alternative, you consider an overnight loan in the fed funds market. What are fed funds rates and how do they relate to repo rates? Explain.