A $100,000,000 $3 \times 6$ FRA has a fixed rate of 4%. The first three-month period is for 91 days and the second one for 92 days. The 91-day Libor rate is 3% and the 183-day Libor rate is 3.5%. The value of this contract to the buyer of the FRA is
A) $- \$ 8913$
B) $- \$ 4822$
C) $+ \$ 3289$
D) $+ \$ 5433$

Question

Quizplus · Accepted Answer

The value of the FRA to the buyer is calculated by finding the difference between the fixed rate and the implied forward rate, then discounting the result. The implied forward rate is calculated using the formula: $(1 + \frac{0.035 \times 183}{360}) / (1 + \frac{0.03 \times 91}{360}) - 1$. The difference is then applied to the notional amount and discounted back using the 183-day Libor rate.

A $100,000,000 3×63 \times 63×6 FRA Has a Fixed Rate of 4

A $100,000,000 $3 \times 6$ FRA Has a Fixed Rate of 4