# Schewser Notes Book4 Question

What is the difference between the following questions? P90 EXAMPLE In anticipation of borrowing \$1,000,000 at LIBOR + 200 bps for one year, a manager has entered an FRA with a reference rate of 5% and a notional principal of \$1,000,000. It is now three months before the maturity of the FRA, which coincides with the beginning of the loan, and LIBOR has increased to 6%. Assuming the riskfree rate is 4%, determine the value and direction of any credit risk in the FRA. P115 Q10 In six months a manager will borrow \$5,000,000 for one year at LIBOR plus 150 bps. LIBOR is currently 3.5%, so the manager enters into an FRA with a reference rate of 5% and a notional principal of \$5,000,000. One month into the contract, LIBOR has fallen to 3%, and the risk-free rate is 2.8%. Determine the bearer and amount of any credit risk. I think the payoff of FRA =(3%-5%)*5M/(1+3%+1.5%) but the answer is (4.5%-5%)*5M/(1+3%+1.5%) Why?

Check the errata on Schweser’s site. In P115’s Q10, LIBOR is changed from 3.5% to 3%. The spread of 150bps is not changed.

anyone has the errata?