Suppose that a party wanted to enter an FRA that expires in 121 days and is based on 55-day LIBOR. The dealer quotes a rate of 0.049 on the FRA. Assume that at expiration, the 55-day LIBOR is 0.029, and the notional amount is USD10,000,000. What is the payoff of the FRA short position
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Suppose that a party wanted to enter an FRA that expires in 121 days and is based on 55-day LIBOR. The dealer quotes a rate of 0.049 on the FRA. Assume that at expiration, the 55-day LIBOR is 0.029, and the notional amount is USD10,000,000. What is the payoff of the FRA short position?
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- Suppose a party wanted to enter into an FRA that expires in 42 days and is based on 137-day LIBOR. The dealer quotes a 4.75 percent rate on this FRA. Assume that at expiration the 137-day LIBOR is 4 percent and the notional principal is $ 20,000,000. Calculate the FRA payout for a long position.A Firm buys an FRA on 90-day LIBOR expiring in 30 days with Notional principal of $20 million. The contract rate is 10%. If at expiration, LIBOR is 8%, how much will the long has to pay to the short i.e., seller of FRA. What happens if at expiration, LIBOR is 12%?Chango Industries has decided to borrow $50,000,000.00 for six months. To reduce the company’s interest rateexposure, Chango entered into a swap whereby the dealer pays quoted fixed rate of 5.91% in exchange for receiving3-month LIBOR at settlement date. Assuming that 3-month LIBOR is 5.6% on the rate determination day, describethe transaction that occurs between the dealer and Chango.a. The dealer is obligated to pay Chango $38,750.b. The dealer is obligated to pay Chango $31,250.c. Chango is obligated to pay the dealer $38,750.d. Chango is obligated to pay the dealer $31,250.
- What is the effective, compound rate of interest you earn if enter into a repurchase agreement in which you buy a tresaury bill for $76,789 and agree to sell it after a month (30 days ) for $77,345? what is the compound rate of interest you pay if you sell a tresaury bill for $76,789 and repurchase it after 30 days for $77,345?Consider a FRA where IBM agrees to borrow $100 mil. from a dealer for 6 months starting in 4 years. The contractual FRA rate is 5.5% per annum. Assume that in 4 years the actual 6-month LIBOR is 7.5% per annum. The FRA is settled when ________ pays _______ the amount of _________. IBM; dealer; $1,000,000 dealer; IBM; $1,000,000 IBM; dealer; $963,855 dealer; IBM; $963,855 dealer; IBM; $36,145Your company needs to borrow $5 million in three months’ time for a period of 6 months (180 days). You are concerned that the changes in interest rates will be unfavorable. You approach an FRA dealer, who provides the following forward quotations: 3Mv9M(19): 9.75–8.55 3Mv6M(19): 9.65–8.45 Required: a) What will be the agreed rate if you enter an FRA agreement with this dealer? Explain your answer. b) Assuming the reference rate on the settlement date is 10 per cent, which party to the FRA is required to make a payment and why? c) Calculate the compensation amount on the settlement date. Show all calculations. d) List and briefly explain two advantages and two disadvantages of FRAs.
- Alolo has bought from YoBank a 3 versus 6 Forward Rate Agreement which is based on a notional principal amount of USD 5 million and an agreed rate of 2% per annum. At the start of the FRA period, the actual rate of interest is 1.5% per annum. Explain what will take place at the start of the Forward Rate Agreementperiod and calculate the reimbursable amount, assuming a 360-day year.Ayola has bought from YoBank a 3 versus 6 Forward Rate Agreement which is based on a notional principal amount of USD 5 million and an agreed rate of 2% per annum. At the start of the FRA period, the actual rate of interest is 1.5% per annum. Briefly outline what will take place at the start of the Forward Rate Agreementperiod and calculate the reimbursable amount, assuming a 360-day year.On January 2, 2020, Parton Company issues a 5-year, $10,000,000 note at LIBOR, with interest paid annually. The variable rate is reset at the end of each year. The LIBOR rate for the first year is 5.8%. Parton Company decides it prefers fixed-rate financing and wants to lock in a rate of 6%. As a result, Parton enters into an interest rate swap to pay 6% fixed and receive LIBOR based on $10 million. The variable rate is reset to 6.6% on January 2, 2021. Instructions a. Compute the net interest expense to be reported for this note and related swap transactions as of December 31, 2020. b. Compute the net interest expense to be reported for this note and related swap transactions as of December 31, 2021.
- . A 90-day government bill was bought by an investor for a price of K95 per K100 nom- inal. After 30 days the investor sold the bill to a second investor for K97.50 per K100 nominal. The second investor held the bill to maturity when it was redeemed at par. Determine which investor obtained the higher annual effective rate of return.Mariel owes P30,000 in 5 months with interest at 7% and another P14000 is due in 11 months with interest at 9%. These two debts are to be replaced with a single payment due in 9 months. Determine the value of the single payment if money is worth 6.5%, using the end of 9 months as the focaldate.Suppose you have a 2.5-year remaining on an interest rate swap with a notionalprincipal of $10, 000, 000 between Company A and Company B. Company A pays fixed rateand Company B pays the float rate. Fixed and float payments are exchanged every year andthe last payment was exchanged 6 months ago. The fixed rate is 3.5% per annum, and thefloating rate is tied to the annual LIBOR. The previous 1-year LIBOR rate, set 6 months ago,is 2.75%, 6 month LIBOR is 3.25%. the 1.5-year LIBOR is 3.25%, and the 2.5-year LIBOR is3.50%.Calculate the present value of the fixed and floating legs of the swap, and determine the swap’snet present value from Company A’s perspective. Assume annual compounding for discounting.