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

Suppose that the forward LIBOR rate for the period between time 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 semiannual compounding and pay LIBOR on a principal of $100 million for the period. The 2-year risk-free rate is 4% with continuously compounding. Compute the value of the FRA.

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