Suppose Fargood Corporation engages in a repurchase agreement with The National Bank of Nebraska. In the agreement, Fargood sells $9,987,950 worth of Treasury securities to the bank and agrees to repurchase the securities in 30 days for $10,000,000.

a.Is this transaction a loan, and if so, who is the borrower and who is the lender? Defend your answer.

b.Is the loan collateralized? What is the collateral? Who holds the collateral during the term of the agreement?

c.What interest rate (or yield) is earned by the lender?

c.Draw T-accounts for this transaction, similar to the example earlier in the chapter. Show the assets and liabilities for each party before and after the transaction.