Study Session 17, Reading #68, Concept Checkers Q10 Consider a $2 million FRA with a contract rate of 5% on 60-day LIBOR. If 60-day LIBOR is 6% at settlement, the long will: A) pay $3,333 B) receive $3,300 c) receive $3,333 My answer is, the long will receive 18,867.92. 2m[(0.06-0.05)*60/360)]/[1.06*(60/360)]=18,867.92 Please correct me if my answer is incorrect.
They are looking for the formula on Swap interest payments which is (swap fixed-libor)(# days/360)(notional)
saminathan I see the error in your formula it’s supposed to be 2m[(0.06-0.05)*60/360)]/[1 + (.06* 60/360)] = 3300 = B Your one is: 2m[(0.06-0.05)*60/360)]/[1.06*(60/360)] See the difference ? In the denominator in the bracket keep it like 1 +( Refrence Rate * das/360)
Supersunny, thank you so much for pointing out the error. Lately, I am making so many silly mistakes like this one.
saminathan the thing I do is just that I multiply the principal with the numerator and then that amount I discount to the denominator. Just a lil 2 step trick. Good luck