Hi, could someone explain why my calc is incorrect regarding this question.
q: 2 million FRA with contract rate of 5% on 60 day LIBOR. If 60 day LIBOR is 6% at settlement, the long will:
my calc: ((0.06-0.05)(60/360))/((1+0.06)(60/360))*2 million= {the wrong answer}
what have I done wrong…
thanks in advance!
Looks right to me…that is the amount the long should receive.
In the denominator (1 + 0.06), you should be multiplying only 0.06 by 60/360; you show that you’re multiplying 1.06 by 60/360.
Your calculation results in 18,868. The correct calculation results in 3,300.
I wrote an article on FRAs the may be of some help: http://financialexamhelp123.com/fras/
^ good catch, didnt even notice that.
should be 1+0.06(60/360)
Thank you!
Could you explain why the book shows results as: (0.06-0.05)*(60/360)*2 million*1/(1+0.06/6)=3,300.00?
Why are they dividing by 6 in the denominator?
1/6 = 60/360: we’re discounting for only 60 days (out of a 360-day year),
That makes sense and I should’ve known that.
Must be a tunnel vision issue.
Thanks again S2000magician.
You’re welcome.
Wow, I definitely missed that reading. Where is this info in the curriculum? I’m going to have to find this and go over it when I get home tonight.
Nevermind, I see it’s under session 17.