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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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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?
Answered 123 days After Jun 04, 2022

Solution

Hari Kiran answered on Oct 05 2022
62 Votes
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 yea
                     =ert
                     = (2.7183/360)0.0305*360*1
                    5.01630379601307E-24
                    Forward Rate for 1.5...
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