Use the following LIBOR-zero rates to find appropriate forward rates: period (years) LIBOR-zero...

Question

Use the following LIBOR-zero rates to find appropriate forward rates: period (years) LIBOR-zero (cont.comp) forward rate for the nth year (cont.comp XXXXXXXXXX% 1 3.05% ? XXXXXXXXXX% ? Questions 1) Find the forward rate for year 1st year and for the 1.5th year , respectively. 2) Find the value of the FRA where you will receive 9% (with semi-annual compounding) on a principal of $100 million for 6 months, which the FRA term starts in year 1 and end in year 1.5. *hint: you would need to convert the appropriate forward rate with continuous compounding from question #1 into a semi-annual compounding rate first. 3) 1 year later, if the 6 month LIBOR turns out to be 5% with semi-annual compounding, how much do you need to pay or receive at 1year point?

Hari Kiran · Accepted Answer

Sheet1
				1
					Continuous Compounding  Formula
					 A = P ert 
					Where 
					A = Future Value
					P = Principal
					e =  Mathematical Constant i.e. 2.7183
					r = Rate of interest
					t = time
					Forward Rate for 1 year
					 =ert
					 = (2.7183/360)0.0305*360*1
					5.01630379601307E-24
					Forward Rate for 1.

Use the following LIBOR-zero rates to find appropriate forward rates: period (years) LIBOR-zero (cont.comp) forward rate for the nth year (cont.comp XXXXXXXXXX% 1 3.05% ? XXXXXXXXXX% ? Questions 1)...

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