Forward rate agreement

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Reference no: EM131502801

You entered into a forward rate agreement (FRA) some time ago as the borrower and the agreed upon rate was 3.75% on $100 million for 1 year starting in 6 months from today. The current Forward LIBOR (i.e. the current FRA rate) for this period is 5.25%. The risk-free rate is 4% per annum with continuous compounding for all horizons up to 1.5 years from now. What is the value of the FRA to you, the borrower, today? Remember FRA rates are quoted with compounding for the horizon of the FRA.

A. $-1,500,000.00

B. $-1,470,298.01

C. $-1,412,646.80

D. $1,412,646.80

E. $1,500,000.00

PLEASE SHOW ALL FORMULA & WORK & EXPLANATIONS -----All rates are per annum with continuous compounding unless otherwise stated

Reference no: EM131502801

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