I have a question about credit risk A has a 100mln loan with L+2%, to protect from the increase of Libor, A decide to purchase a one year forward rate agreement with Libor minus 1%(L-1%), notional principal is 100mln. (risk free rate is 3%) This FRA will exeucte 3 months from now. if Libor is 2% now. what is the credit risk of A in this FRA ----------------------- I suppose the payoff at the end of loan for this FRA shall be 100*(2%-1%), and this FRA is in the money. But how to calculate the present value now? it shall be 100*(2%-1%)/(1+2%)/(1+2%*3/12) or what? I am confused
where did you get this question from, if i may ask? it doesn’t quite make sense to me.
i saw this quesiton somewhere in the question books of schweser, but i cant find it now. i just dont now how to calcuate the present value of this FRA , what discount rate shall be used? 1/(1+2%)/(1+2%*3/12)? 1/(1+2%)/(1+4%*3/12)? 1/(1+2%*3/12)? 1/(1+4%*3/12)?