pathwal1 I explain TWO ways to calculate so you can choose and pick whatever method works for you. Others may have better way. METHOD 1 Pay off of FRA is the PV of the interest SAVINGS which you have at the end when you long on the FRA. There are three steps: 1. New FRA rate. 1. Interest savings you when pay back at the end: Current FRA rate - your FRA rate. 2. PV calculation (of the savings): discount back using the floating rate. METHOD 2 Less calculation but a bit more complex. Pay off of FRA = PV (principal) - PV (the principal+FRA rate) discount at appropriate floating rate. Best with an example 1*7 FRA at 6.19% (i.e. 30 days and 210 days) 20 days later the relevant rates are Euribor is 5.45% (10 days) and 5.95% (190 days) Method 1: 1. New FRA rate = 5.97% ( I leave it to you to check it) 2. Interest saved to be paid in 190 days = (5.97 % - 6.19%)* (180/360 days) = -.109% 3. PV of .109%@ 5.95% for 190 days= -.11% Method 2 PV of principal (of 1) = 1 @ 5.45% for 10 days = 1/ (1+5.45%*10/360))= 99,85% PV of the return of the loan (1+ FRA rate) = (1+ 6.19%*180/360)/(1+5.95%*190/360)= -99,95% FRA payoff = 99.85% - 99.95% = -.11% (rounding) Both give same answer. In this case, the long loses money since FRA rate has gone down since she entered the contract. Don’t try to remember BOTH Tips: 1. Always draw out the time line and calculate the day interval 2. Always use UNANNUALIZED rate to discount using linear method (i.e., not compound)