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please use excel and show formulas! thank you! A US-based lender wishes to hedge against decrease in future interest rates. The lender proposes to hedge
please use excel and show formulas! thank you! A US-based lender wishes to hedge against decrease in future interest rates. The lender proposes to hedge against this risk by entering into a FRA with the notional amount of $10 million. The current term structure of LIBOR is as follows in Table 1; A.Indicate whether the manager should take a long or short FRA in order to fully hedge interest rate risk and why? B. Calculate the price of this 312 FRA today. C. Calculate the price of this 36 FRA today. Notional Principal $10,000,000 Suppose 45 days later, interest rates have decreased and the LIBOR term structure is as follows in Table 2; D. Suppose the manager entered into 312 FRA at the price computed in (B). Calculate the value of this 312 FRA at this point. E. At expiration, the 270 -day LIBOR is 4.5%. Calculate the payoff on this 312 FRA. A US-based lender wishes to hedge against decrease in future interest rates. The lender proposes to hedge against this risk by entering into a FRA with the notional amount of $10 million. The current term structure of LIBOR is as follows in Table 1; A.Indicate whether the manager should take a long or short FRA in order to fully hedge interest rate risk and why? B. Calculate the price of this 312 FRA today. C. Calculate the price of this 36 FRA today. Notional Principal $10,000,000 Suppose 45 days later, interest rates have decreased and the LIBOR term structure is as follows in Table 2; D. Suppose the manager entered into 312 FRA at the price computed in (B). Calculate the value of this 312 FRA at this point. E. At expiration, the 270 -day LIBOR is 4.5%. Calculate the payoff on this 312 FRA
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