Question: Problem 1.5 The yield curve is flat at 5% per annum with quarterly compounding. What is the value of a Forward Rate Agreement (FRA) where

Problem 1.5 The yield curve is flat at 5% per annum

Problem 1.5 The yield curve is flat at 5% per annum with quarterly compounding. What is the value of a Forward Rate Agreement (FRA) where the holder receives interest at the rate of 5% per annum for one year on a principal of $1,000 starting in one year? Hint: Draw a diagram showing the cash flows exchanged as part of the FRA and its timeline

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