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Suppose that you can borrow or lend at LIBOR. You wish to borrow $100,000 starting in 3 months for a duration of 2 months. The

  1. Suppose that you can borrow or lend at LIBOR. You wish to borrow $100,000 starting in 3 months for a duration of 2 months. The current 3v5 borrowing rate is 2.75%.
    1. What is the amount you expect to pay back at the end of 5 months from this loan?
    2. Now suppose that you lock in this rate. 3 months from now, you see the following LIBOR curve:

Duration

1 month

2 months

3 months

4 months

5 months

Rate (%)

2.26

2.35

2.45

2.51

2.53

What should be the cash flow from your FRA?

To actually effectively borrow $100,000 for 2 months, you will need to actually borrow since the FRA is cash-settled. How much will you need to borrow and at what interest rate can you do so? Show that the amount owed at the end of this 2-month loan is the same as your calculation in (a).

pls help

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