To finance this transaction you decided to enter into a 3-day repo transaction. The repo dealer offers 3% on reverse repo and 3.5% on repo transaction. Also, the repo dealer gets 0.75% haircut. After 3 days the quotes are as follows:

Maturity Coupon (%) Bid Asked Chg

3/15/2025 1.75 93.059 93.104 -0.016

3/15/2034 3.5 95.863 95.968 -0.021

a) Show the details of the repo transaction. What is the profit (loss) on repo transaction?

b) Show the details of the reverse repo transaction. What is the profit (loss) of the reverse repo transaction?

c) What is the total profit (loss) of these two transactions?

d) What is the return on your own capital from these transactions?

e) Were you correct at predicting flatenning yield curve? Why? Why not?