FRA Schweser Practice Question long, 300, understand, everything, contract

tarunajwani

Reading # 68, question 10:
Consider a $2MM FRA with a contract rate of 5% on 60day LIBOR. If 60day LIBOR is 6% at settlement, the long will:
B. Receive $3,300
(.06.05)x(60/360)x$2MM x (1+.06/6) = $3300.33
I understand everything except discounting by 1.06/6. What’s the 6 for?
I’m sure it’s not that hard, I think my brain is just tired…

xilinx_altera

6 is 60/360 the period you are discounting the interest by

spartanag07

it is 1/6 which is same as 6 in denominator…

btcapital

AH see, I knew I was being slow. Thank you so much.