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Suppose that the 3 month and 6 month continuously compounded LIBOR rates are 5% and 6% respectively. Assume that LIBOR is used as the risk-free

Suppose that the 3 month and 6 month continuously compounded LIBOR rates are 5% and 6% respectively. Assume that LIBOR is used as the risk-free discount rate.

What is the value of an FRA under which 8% is paid and LIBOR is received on $10 million for the period? Assume that these rates are quarterly compounded.

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