Editing Repurchase agreement (section)

== Repo expressed as mathematical formula ==
{{Unreferenced section|date=July 2021}}

A repurchase agreement is a transaction concluded on a ''deal date t<sub>D</sub>'' between two parties ''A'' and ''B'':

: (i) ''A'' will on the ''near date'' <math display="inline>t_N</math> sell a specified [[security (finance)|security]] ''S'' at an agreed price ''P<sub>N</sub>''  to ''B''
: (ii) ''A'' will on the ''far date'' t<sub>F</sub> (after  t<sub>N</sub>) re-purchase ''S'' from ''B'' at a price ''P<sub>F</sub>'' which is already pre-agreed on the deal date.

If positive interest rates are assumed, the [[repurchase]] price P<sub>F</sub> can be expected to be greater than the original sale price P<sub>N</sub>.

The (time-adjusted) difference <math display="inline">\frac{P_F - P_N}{P_N}\cdot\frac{365}{t_F - t_N}</math> is called the ''repo rate'', which is the annualized [[interest rate]] of the transaction. <math display="inline">\frac{P_F - P_N}{P_N}\cdot\frac{t_F - t_N}{365}</math> can be interpreted as the interest rate for the period between ''near date'' and ''far date''.