Credit risk in a FRA difference, examples, reading, LIBOR

pimpineasy

In the Schweser examples (pages 9092 on reading 39) they give the formula:

payoff = (LIBOR - r)NP*(days in underlying /360)

In concept check #10 they calculate the payoff using the loan rate (LIBOR + 150bps)

Why the difference and when do you use one vs. the other?

mcmc

I want to say that one is calculating the payoff and the other is discounting back to today, but not looking

skycfa

By the way, I found that only Schweser covers credit risk in a FRA in this example..... the curriculum only covers forward, swap & option... besides, the LOS only asks us to know credit risk in forward, swap & option as well!!!

well... i wonder if we need to know about this for exam!!!

Valores

FRA is a forward

mar350

i dont think we need to now the calculations of FRA for L3

NakedPuts2011

dont need to know the calc. how easy is the deriv section compared to L2 shuns?

nannan66

why would schweser show this calc if CFAI doesnt