# More FRA Practice

What is the value of a 6.00 percent 1x4 (30 days x 120 days) forward rate agreement (FRA) with a principal amount of \$2,000,000, 10 days after initiation if L10(110) is 6.15 percent and L10(20) is 6.05 percent? A) \$745.76. B) \$700.00. C) \$767.40. D) \$826.46.

A

90 day settlement–20 days from now will be: 1+ (0.0615 x 110/360) divided by (1+ (0.0605 x 20/360)) – 1) x 360/90 = 0.06151 approx Calculate the interest differential on principal \$2m in comparison to FRa rate (0.06151 x 90/360 – 0.060 x 90/360) x 2,000,000 = \$758.50 approx now discount this to 110 days to get approx 745.76 I did this question today morning.

A

weird im getting 754

I got 743.8…approx…but i’m guessing it’s just rounding error… so i’ll go with A too

something is wrong here: ({[1+.0615(110/360)] / [1+.0605(20/360)]} - 1 ) * (360/90) = 6.134% V10 = [(.06134 - .06) * 90/360] * 2000000 I do not get any of the given choices!! =( Anish

Be careful with your BODMAS hey.

Mukaranga Wrote: ------------------------------------------------------- > Be careful with your BODMAS hey. Means I should get the answer the way I did?? Just need to re-calc?? Thanks

haha u mean BEDMAS 1luv

REKOOH, I guess you need to post the answer. Thanks

the answer is A. done the way moregreat did it. The problem and the reason I posted it is that we have to be very careful on rounding. Too few decimal places and the answer is too low, too many and it is too high. I finally figured it out with three decimal places.

740.19 going out to 5 decimal places. But in the ballpark. Got another one to post?

why not use the formula? Vg(0,h,m)=1/(…)-(1+FRA*m/360)/(…) I can not get it right. Any help? thanks

got it ,thanks