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Problem:
On the 15th of May 2013 you enter a Forward Rate Agreement (FRA) to borrow on the 15th of September 2013 $1'000'000 for 8 months at a fixed annualized interest rate of 5% (for a FRA with a contract length of 8 months the compounding frequency is 1.5 times c.p.a.). Suppose the following bonds are traded in the market on the 15th of August 2013:
x% semi-annual coupon means $1000 x%/2 coupon payments every 6 months
x% quarterly coupon means $1000 x%/4 coupon payments every 3 months
What is the value of the FRA for you as a borrower on the 15th of August 2013?
Additional Information:
This question is from Finance and the question is about computation of forward rate agreements. The question is about borrowing upon forwards can help in the computation of forward rate agreement with certain percentage of interest.
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