San15
November 24, 2015, 5:02pm
#1
Practice Problem Page 49 Question 9 Sub Section C
Given 135 days Interest Rate is 5.90%
Given 315 days Interest Rate is 6.15%
We caluclated 6 X 12 FRA to be 6.03% in Part B
9© Cal the market value of this FRA based on NP of $10M.
My work
(1+0.0615*315/360)=(1+0.0590*135/360)(1+a*180/360)
a=6.2003%
Value=(0.062003-0.0603)*(180/360)*10M = 8515 Book Answer is $8100
What is wrong?
S666
November 24, 2015, 5:09pm
#2
I havnt checked that particular example but perhaps because you havn’t discounted the payoff back to the present? The value of $8515 is the future value that will be paid at the end of 315 days.
cpk123
November 24, 2015, 8:36pm
#3
8515 / (1+(0.0615*315/360)) = 8080 … approx 8100 that you have…
San15
November 25, 2015, 2:24pm
#4
Thank you so much. Appreciate your response.