Am I the only one or Elan’s FRA calculations are wrong?
The formulas are correct. but when I plug the numbers in calculator, I get different answers than the choices…
Is anyone getting same answers as them? I might be doing something wrong here.
I have posted sample question in second post.
Thanks
A company wishes to hedge against an increase in future borrowing costs by entering into a 3 × 12 FRA. The current term structure for LIBOR is given below: Term (Days) Interest Rate (%) 30 days 5% 90 days 5.15% 270 days 5.60% 360 days 5.85% For Question 25 I am getting -2138.66 while their answer is -2195.14.
For your reference, the original FRA rate calculated is 6.01% 25. Suppose 45 days later, the 45-day Euribor is 5.55% and the 315-day Euribor is 5.95%. Given the notional principal of $10m, the value of the long position is closest to: A. -2,250 B. 5,731.34 C. -2,195.14
try going higher decimals…
that big difference due to decimals?
Using 8 decimals I can get the answer. Completely ridiculous that they make you go out that far without mentioning it. Remembering these calcs is tough enough.
definitely rounding error when it comes to swaps. i believe during the exam they will state how many digits you should round to though.
I have 8 decimal places and I am still not getting this answer.
can someone try this calc?
10,000,000 * [0.0598 - 0.0601]*(270/360)
devided by
1 + [0.0595*(315/360)]
Can you tell me what is your answer?
Thanks,
You’re looking for the value of the FRA, not the payoff. The correct formula is:
1/1+.0555*(45/360) - 1+.06006006*(270/360)/1+.0595(315/360) = -.00021951 * (notional) 10,000,000 = -2,195.117
^^^^ Thank you… Highly appreciate it… its clear now.
I’m struggling with this too.
I really don’t get it at all.
Elan say the equation is:
10,000,000 * [0.0598 - 0.0601]*(270/360)
devided by
1 + [0.0595*(315/360)]
This is the equation in the books as well. WHY IS MY BLOODY ANSWER DIFFERENT ARGHH!!!