How is dollar interest calculated?

The calculation of dollar interest specifically in the context of a repurchase agreement, or repo, is standardized to provide a clear understanding of the financing costs associated with borrowing funds. In this case, choice C is correct because it takes into account the principal amount, the repo rate, and the term of the repo, using a 360-day convention, which is commonly utilized in money market transactions.

Using a 360-day year simplifies computations and aligns with the practices in many financial contexts where interest is accrued on an actual/360 basis. The formula clearly states that to determine the dollar interest from a repo transaction, you multiply the principal amount by the repo rate, and then multiply this result by the fraction representing the term of the repo in days divided by 360.

The other options differ in how they calculate the interest or use a different denominator for the time calculation, which may not adhere to the standard practices in repo calculations. For instance, option A uses a 365-day basis without specifying the context of repos, which could lead to inconsistency in calculations. Options B and D also include unnecessary variations in their formulas or don't focus on the specific context of the repo transaction, making them less suitable for calculating dollar interest effectively.