A company is planning to borrow $120 million after three months for a period of six months. The quote for the loan is LIBOR. The loan rate, LIBOR, will be determined at the start of loan and stay the same for its duration. Currently LIBOR is 3%. The company is willing to pay 3.25% fixed interest on the loan to avoid variable interest.

Part a. Construct a Forward Rate Agreement (FRA) for the company.

Part b. Should the company buy or sell the FRA?

Part c. Show the cash flows at the beginning of the loan for cases if LIBOR equals 2.5%, 3.25%, and 3.75%.