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A forward rate agreement (FRA) has a notional principal of $10 million, an FRA rate of 5% (quarterly compounded), an expiration/delivery date in 1 year
A forward rate agreement (FRA) has a notional principal of $10 million, an FRA rate of 5% (quarterly compounded), an expiration/delivery date in 1 year and the underlying asset is a 3-month Eurodollar time deposit.
The 1 year and 1.25 year LIBOR rates are 3% and 3.5% on a continuously compounded basis.
The value of the FRA to the purchaser is closest to:
a. $12,922.00
b. -$11,965.00
c. $11,965.00
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