Enter Values
Quick Reference
- Overnight Repo: 1-day term (most common)
- Term Repo: 2+ days to several weeks
- Day Count: Actual/360 (money market standard)
- Haircut: Protects lender against collateral decline
Results
Forward ModeRepo Calculation
Repo Interest
$1,458.33
Repurchase Price
$10,001,458.33
Haircut / Margin
Haircut Amount
$204,000.00
Maximum Borrowing
$9,996,000.00
Formula: Actual/360 Day Count
1
Repo Interest = Principal x (Rate / 100) x (Days / 360)
= $10,000,000 x 0.0525 x (1 / 360)
= $1,458.33
2
Repurchase Price = Principal + Repo Interest
= $10,000,000 + $1,458.33
= $10,001,458.33
Haircut Calculation
H1
Haircut Amount = Collateral x (Haircut Rate / 100)
= $10,200,000 x 0.02
= $204,000
H2
Max Borrowing = Collateral x (1 - Haircut Rate / 100)
= $10,200,000 x 0.98
= $9,996,000
Model Assumptions
- Actual/360 day count: Standard money market convention (actual days / 360-day year)
- Simple interest: No compounding within the repo term
- Annualized rates: All rates expressed as annual percentages
- Haircut applied to market value: Collateral value is current market price
- Educational purposes: Not financial advice. Actual repo terms may vary.
Frequently Asked Questions
A repurchase agreement (repo) is a short-term borrowing arrangement where one party sells securities to another with an agreement to repurchase them at a higher price on a specified date. The difference between the sale price and repurchase price represents the interest cost. Repos are a key funding mechanism in money markets.
Repo interest is calculated using the formula:
Interest = Principal x (Repo Rate / 100) x (Days / 360). Repos use the Actual/360 day count convention, which is standard for money market instruments. This means the actual number of days is used, but the year is assumed to have 360 days.
A haircut (or margin) is the percentage difference between the market value of collateral and the amount that can be borrowed against it. For example, a 2% haircut on $10.2M of collateral means you can borrow a maximum of $9,996,000. Haircuts protect lenders against declines in collateral value.
The implied repo rate is the annualized interest rate derived from the difference between the sale price and repurchase price. It is calculated as:
Implied Rate = (Repurchase Price / Sale Price - 1) x (360 / Days) x 100. This is useful for comparing repo terms to other money market rates.
Repos use Actual/360 because it is the standard convention for US money market instruments, including Treasury bills, commercial paper, and federal funds. This convention results in slightly higher interest for the lender compared to Actual/365.
An overnight repo has a term of one day (the most common type), while a term repo extends for a specified period longer than one day, typically ranging from a few days to several weeks or months. Overnight repos offer more flexibility but may have slightly different rates than term repos.
