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Cash flow that is settled at the three-year point

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Reference no: EM132409646

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.

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

What is the current value of an FRA?

Reference no: EM132409646

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