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 an cash outflow to you?

#2) What is the current value of an FRA?

		#1) +9661.84 ; cash inflow
		#1) -9661.84 ; cash outflow
		#1) -10000 ; cash outflow
		#1) +10000 ; cash inflow
		#2) value of an FRA = +9684
		#2) value of an FRA = -9684
		#2) value of an FRA = +7860
		#2) value of an FRA = -7860