What is the difference between the following questions?
P90 EXAMPLE
In anticipation of borrowing $1,000,000 at LIBOR + 200 bps for one year, a
manager has entered an FRA with a reference rate of 5% and a notional principal of
$1,000,000. It is now three months before the maturity of the FRA, which coincides
with the beginning of the loan, and LIBOR has increased to 6%. Assuming the riskfree
rate is 4%, determine the value and direction of any credit risk in the FRA.
P115 Q10
In six months a manager will borrow $5,000,000 for one year at LIBOR plus
150 bps. LIBOR is currently 3.5%, so the manager enters into an FRA with a
reference rate of 5% and a notional principal of $5,000,000. One month into
the contract, LIBOR has fallen to 3%, and the risk-free rate is 2.8%. Determine
the bearer and amount of any credit risk.
I think the payoff of FRA =(3%-5%)*5M/(1+3%+1.5%)
but the answer is (4.5%-5%)*5M/(1+3%+1.5%)
Why?作者: Valores 时间: 2011-7-13 17:16
Check the errata on Schweser's site.
In P115's Q10, LIBOR is changed from 3.5% to 3%. The spread of 150bps is not changed.作者: Windjam 时间: 2011-7-13 17:16
