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Assuming that risk-free rates are as in Problem 4.5, what is the value of an FRA where the holder will pay LIBOR and receive 4.5%
Assuming that risk-free rates are as in Problem 4.5, what is the value of an FRA where the holder will pay LIBOR and receive 4.5% (quarterly compounded) for a three-month period starting in one year on a principal of $1,000,000. The forward LIBOR rate for the three month period is 5% quarterly compounded.
Risk Free Rates from problem 4.5
| Maturity (months) | Rate (% per annum) |
| 3 | 3.0 |
| 6 | 3.2 |
| 9 | 3.4 |
| 12 | 3.5 |
| 15 | 3.6 |
| 18 | 3.7 |
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