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Please Help Thank you!! 3) Suppose that you can borrow or lend at LIBOR. You wish to borrow $100,000 starting in 3 months for a
Please Help Thank you!!
3) Suppose that you can borrow or lend at LIBOR. You wish to borrow $100,000 starting in 3 months for a duration of 2 months. The current 3v5 borrowing rate is 2.75%. a. What is the amount you expect to pay back at the end of 5 months from this loan? b. Now suppose that you lock in this rate. 3 months from now, you see the following LIBOR curve: Duration 1 month 2 months 3 months 4 months 5 months Rate (%) 2.26 2.35 2.45 2.51 2.53 What should be the cash flow from your FRA? C. To actually effectively borrow $100,000 for 2 months, you will need to actually borrow since the FRA is cash-settled. How much will you need to borrow and at what interest rate can you do so? Show that the amount owed at the end of this 2-month loan is the same as your calculation in (a)Step by Step Solution
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