Question
Suppose that in order to hedge interest rate risk on your borrowing, you enter into a FRA that will guarantee a 6% effective annual interest
Suppose that in order to hedge interest rate risk on your borrowing, you enter into a FRA that will guarantee a 6% effective annual interest rate for one year on $500.000. On the date you borrow the $500.000 the actual interest rate is 5%. Determine the dollar settlement of the FRA assuming:
Settlement occurs on the date the loan is initiated
Settlement occurs on the date the loan is repaid
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Financial Modeling
Authors: Simon Benninga
4th Edition
0262027283, 9780262027281
