Use the following LIBOR-zero rates to find an appropriate forward rates: period (years) LIBOR-zero (cont.comp) forward rate
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Question:
Use the following LIBOR-zero rates to find an appropriate forward rates:
period (years) | LIBOR-zero (cont.comp) | forward rate for the nth year (cont.comp) |
0.5 | 4.04% | |
1 | 3.05% | ? |
1.5 | 3.50% | ? |
1) Find the forward rate for year 1st year and for the 1.5th year , respectively.
2) Find the value of the FRA where you will receive 9% (with semi-annual compounding) on a principal of $100 million for 6 months, which the FRA term starts in year 1 and end in year 1.5. *hint: you would need to convert the appropriate forward rate with continuous compounding from question #1 into a semi-annual compounding rate first.
3) 1 year later, if the 6 month LIBOR turns out to be 5% with semi-annual compounding, how much do you need to pay or receive at 1year point?
Related Book For
Multinational Business Finance
ISBN: 978-0132743464
13th edition
Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett
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