Question points$)=14,375$

A$.$ Dolporate treasurer wishes to hedge aganst an increase in future borrowing costs due to possible rise in short$-$term interest rates She proposes to hedge against this risk by entering a long FRA contract that expires in $180$ days and is based on $180-$Day LIBOR. The current term structure for LIBOR is as follows:

$\backslash$table$[[$Term $($Days$),$Interest Rate $(\%)],[30,5\mathrm{.}1],[90,5\mathrm{.}25],[180,5\mathrm{.}7],[360,5\mathrm{.}95]]$

Interest rates are measured with a compounding frequency reflecting the length of the period they apply to$.$

a$.$ Calculate the rate that the treasurer would receive on this FRA. $(10$ marks$)R_2-T_1$

b$.$ Suppose the treasurer went long this FRA. Now, $45$ days later, interest rates have risen and $t$ LIBOR term structure is as follows:

$\backslash$table$[[$Term $($Days$),$Interest Rate $(\%)],[135,5\mathrm{.}9],[315,6\mathrm{.}15]]$

$H{k}_m$

col Calculate the market value of this FRA based on a notional principal of $$10,000,000.(10$ marl $9.$ At expiration, the $180-$day LIBOR i $6\mathrm{.}25\%$ Calculate the payoff on the FRA. Does the treasurer receive a payment or make a payment to the dealer?$(10$ marks$)$

$LC{R}_m$