FRA Schweser Practice Question understand, everything, contract, question, except

rosemary2011

Reading # 68, question 10:

Consider a $2MM FRA with a contract rate of 5% on 60-day LIBOR. If 60-day 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...

leadcfa

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

ramdabom

Again, I realize I'm probably just completely missing the point here, but that doesn't make sense to me. I get that it needs to be discounted back 60/360, but that's not = 6...

Finalnub

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

sdada

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