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Question 6 You take a long position in a 12 x 12 FRA with a predetermined rate of 5% p.a. compounded annually. The 12-

Question 6 You take a long position in a 12 x 12 FRA with a predetermined rate of 5% p.a. compounded annually. The 12- month and 24-month zero rates are 3.5% and 4.5% p.a. compounded continuously. What is the cash position at the commencement of the loan, if the loan is of $10,000? Assume forward rates to be realized in the market. T (7 marks) Question 7 Given Fo=So erT = K, prove that the value of a forward contract at initiation is zero. (7 marks)

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