Question: What is the rate on a synthetic FRA for a
What is the rate on a synthetic FRA for a 180-day loan commencing on day 180? Suppose you are the counterparty for a borrower who uses the FRA to hedge the interest rate on a $10m loan. What positions in zero-coupon bonds would you use to hedge the risk on the FRA?
Answer to relevant QuestionsSuppose you are the counterparty for a lender who enters into an FRA to hedge the lending rate on $10m for a 90-day loan commencing on day 270. What positions in zero-coupon bonds would you use to hedge the risk on the FRA? A lender plans to invest $100m for 150 days, 60 days from today. (That is, if today is day 0, the loan will be initiated on day 60 and will mature on day 210.) The implied forward rate over 150 days, and hence the rate on a ...A 6-year bond with a 4% coupon sells for $102.46 with a 3.5384% yield. The conversion factor for the bond is 0.90046. An 8-year bond with 5.5% coupons sells for $113.564 with a conversion factor of 0.9686. (All coupon ...Suppose that in order to hedge interest rate risk on your borrowing, you enter into an FRAthat will guarantee a 6%effective annual interest rate for 1 year on $500,000.00. On the date you borrow the $500,000.00, the actual ...Using the assumptions in Tables 8.5 and 8.6, verify that equation (8.13) equals 6%.
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