Hey,

Could I please get some help on this practice problem with each of its components? Detailed responses help tremendously.

Thank you.

A bank wishes to raise funds in the overnight RP market against a T-bill that it owns which has a market value of $250,000. a. If the bank is offered a 2.5% repo rate with a 0.5% haircut, how much can it raise by issuing the RP? b. What is the interest income that the lender to this bank would make on this overnight loan? What is the actual annualized rate of return that the lender would receive on this investment? C