You entered in to a 3*6 forward rate agreement that obliged you to borrow $10,000,000 at 3%.Suppose at the maturity of the FRA,the correct interest rate is 3½%.Clearly you are better off since you have the ability to borrow $10,000,000 for 3 months at 3% instead of 3½%.What is the payoff at the maturity of the FRA?

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The payoff of a forward rate agreement (FRA) is calculated as the difference between the contracted rate and the market rate at maturity, applied to the notional amount and adjusted for the period. The formula is: Payoff = Notional * (Market Rate - Contract Rate) * (Days/360) / (1 + Market Rate * (Days/360)). Here, the notional is $10,000,000, the market rate is 3.5%, the contract rate is 3%, and the period is 90 days. The calculation results in a payoff of approximately $12,391.57.

You Entered in to a 3*6 Forward Rate Agreement That