The LIBOR yield curve is flat at 7% per annum. An FRA is designed where the holder pays fixed interest at the rate of 7.2% per annum for a 6-month period on a principal of $10 Million starting in three years. Note that all rates are quoted with semi-annual compounding.

1. What is the cash flow that is settled at the three-year point? Is it a cash inflow or a cash outflow to you?

#1) +9661.84 ; cash inflow

#1) -9661.84 ; cash outflow

#1) -10000 ; cash outflow

#1) +10000 ; cash inflow

2.What is the current value of an FRA

#2) value of an FRA = +9684

#2) value of an FRA = -9684

#2) value of an FRA = +7860

#2) value of an FRA = -7860