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LOS g: Calculate and interpret the payoff of an FRA and explain each of the component terms.
Q1. Consider a forward rate agreement (FRA) that expires/settles in 90 days. The agreement is based on the 180-day LIBOR. The long position agrees to borrow $10,000,000 from the short position (i.e. the dealer). The dealer quotes this instrument at 6 percent. Today, the 90-day LIBOR is 5.5 percent. If the 180-day LIBOR in 90 days is quoted at 5 percent, compute the amount of the cash settlement payment made or received by the borrower at expiration. The borrower will:
A) receive a payment of $48,543.
B) make a payment of $48,543.
C) make a payment of $48,780.
Q2. When calculating the settlement payment on a long position in a London Interbank Offered Rate (LIBOR)-based forward rate agreement, the denominator is best described as:
A) a discount factor based on the contract LIBOR rate.
B) a discount factor based on LIBOR at settlement.
C) the interest differential between a loan made at the contract rate and one made at the market rate at contract expiration.
Q3. Consider a $1 million 90-day forward rate agreement based on 60-day London Interbank Offered Rate (LIBOR) with a contract rate of 5%. If, at contract expiration, 60-day LIBOR is 6%, the short must pay:
A) $1,652.89.
B) $1,650.17.
C) $1,666.67.
Q4. A 60-day $10 million forward rate agreement (FRA) on 90-day London Interbank Offered Rate (LIBOR) (a 2X5 FRA) is priced at 4%. If 90-day LIBOR at the expiration date is 4.1%, the long:
A) receives $2,474.63.
B) receives $2,500.00.
C) pays $2,474.63.
Q5. The following data applies to a forward rate agreement that settles in 60 days:
- It is based on 180-day LIBOR
- The notional principal amount is $15 million
- It calls for a forward rate of 6.5%
- In 30 days, 180-day LIBOR will be 6.2%
- In 60 days, 180-day LIBOR will be 7.0%
- In 180 days, 180-day LIBOR will be 7.5%
The short’s cash payment at settlement is closest to:
A) $37,500.
B) $36,232.
C) the short will not have to make a payment.
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发表于 2009-3-2 09:56
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