Hi all,

I am getting a different result when using the schweser method to value FRAs versus the official method and I think that this is due to the rounding off of sig digits of the %s and fractions.

If we look at the official bk 6, pg52, question 9, part b/ c:

- Calculate the rate the tresurer would receive on a 6 x 12 FRA

6.03%

This result is ok.

The next part of the question is :

Suposed the treasurer went long, now 45 days later rates have rise and the new LIBOR term structure is as follows

Term (days) i rate

135 5.90%

315 6.15%

Using the schweser way :

([1+(0.0615)(315/360)] / [1 + (0.0570)(135/360)] - 1 ) * (360/180) = 6.2%

(0.062 - 0.0603)(180/360) * 10’000’000 = 8’500

8’500 / [1 + (0.062)(315/360)] = 8’062.60

using the official way : 8’100 (rounded off from 8’086.48 if you follow their methodology)

On the exam will this make a difference when it comes to choosing the correct answer ?

Thank you