On 1 Jan 2021 company has entered a FRA where it will receive a fixed rate...

 

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On 1 Jan 2021 company has entered a FRA where it will receive a fixed rate of 6% pa. under annual compounding and pay appropriate LIBOR on a principal of 1,000,000 for a financing period starting in on 1 Jan 2022 and lasting 1 year. FRA will be settled at the end of financing period. Calculate value of this FRA as of 1 Jan 2021 assuming that the market spot LIBOR rates pa. under continuous compounding quoted at that date are the following: Period (in LIBOR spot rates pa. for n-year years) period (cc) 1 5.5% 2 5.8% 3 4 6,0% 6.1% On 1 Jan 2021 company has entered a FRA where it will receive a fixed rate of 6% pa. under annual compounding and pay appropriate LIBOR on a principal of 1,000,000 for a financing period starting in on 1 Jan 2022 and lasting 1 year. FRA will be settled at the end of financing period. Calculate value of this FRA as of 1 Jan 2021 assuming that the market spot LIBOR rates pa. under continuous compounding quoted at that date are the following: Period (in LIBOR spot rates pa. for n-year years) period (cc) 1 5.5% 2 5.8% 3 4 6,0% 6.1%

Answer rating: 100% (QA)

In the given scenario a company has entered into a Forward Rate Agreement FRA where it would receive a fixed interest rate of 6 per annum and pay a fl... View the full answer