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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
- 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%.
- What is the amount you expect to pay back at the end of 5 months from this loan?
- 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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