This is Wiley practice question 25 for reading 47.

I would think it’s an error, except my calculation for the value of the FRA is off on every question. - Close enough to guess the answer, but not good enough otherwise.

This is an item set question. The first question is:

The no-arbitrage FRA rate for the 3 × 12 FRA is closest to: Answer = 6.01

The second question is:

Suppose 45 days later, the 45-day Euribor is 5.55% and the 315-day Euribor is 5.95%. Given the notional principal of $10m, the value of the long position is closest to:

Their answer calculation is shown in my original post. I thought I was just doing something funny w/ my calculator. Anyway, I can’t come up w/ their answers in the reading examples or problem sets.

Thanks so much for taking the time to work through this problem.

I ran into the same issue, calculated the same answer you did, and I’m convinced there’s an error. I’m almost positive that the net value to the long at t=360 is -2,250. If that assumption is correct, the annualized interest rate you would need to use to discount it to t=45 in order to get -2,195.14 is 2.8562%. Definitely not the market rate of 5.95%.

The examples in the study guide work out just fine though (I had to use 5 or 6 decimals for most of them).

@penguin. I think you are right about the -2,250. It appears that they are trying to trip up people that forget to discount. I am using Schweser and running into a similar situation. I have been expanding out to 6 decimals. Still not getting an exact match but it gets within the ball park.