Question: 2. Suppose that the forward LIBOR rate for the period between 1.5 years and time 2 years in the future is 5% (with semiannual compounding)

2. Suppose that the forward LIBOR rate for the period between 1.5 years and time 2

years in the future is 5% (with semiannual compounding) and that some time ago a

company entered into an FRA where it will receive 5.8% (with semi-annual compounding)

and pay LIBOR on a principal of $100 million for the period.

What is the value of FRA where

(a) the discount rate is LIBOR

(b) The discount rate is 4% (with continuous compounding)

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