The 9-month Libor rate is 4%. The 12-month Libor rate is 5%. An investor creating a homemade forward forward could earn what annualized interest rate on a 3-month $1,000,000 deposit made in 9 months?
I'm pretty confident it is:
1,000,000 / 1 + .04 (3/4) = $970,874
$970,874 x (1 + .05 (4/4)) = $1,019,418
then this is where I'm unsure... is it:
$1,019,418 - $970,874 = $48,544
$48,544 / $1,000,000 = .0485 = 4.85%
Please show work if this isn't right
Yes. It is CORRECT.
(1) Enter into a forward contract
(2) Agree to pay 9 months LIBOR and receive 12 months LIBOR
From above arrangement return made will be, as you have calculated.
The 9-month Libor rate is 4%. The 12-month Libor rate is 5%. An investor creating a...
The 9-month Libor rate is 4%. The 12-month Libor rate is 5%. An investor creating a homemade forward forward could earn what annualized interest rate on a 3-month $1,000,000 deposit made in 9 months? I'm pretty confident it is: 1,000,000 / 1 + .04 (3/4) = $970,874 $970,874 x (1 + .05 (4/4)) = $1,019,418 then this is where I'm unsure... is it: $1,019,418 - $970,874 = $48,544 $48,544 / $1,000,000 = .0485 = 4.85% Please show work if this...
The 9-month Libor rate is 4%. The 12-month Libor rate is 5%. An investor creating a homemade forward forward could earn what annualized interest rate on a 3-month $1,000,000 deposit made in 9 months? Note: I think the answer is 4.85%, but I am not 100% sure. Please show work and calculations.
The 6-month, 12-month, 18-month, and 24-month zero rates are 4%, 4.5%, 4.75%, and 5% with semiannual compounding, respectively. (a) What are the rates with continuous compounding? (b) What is the forward rate for the six-month period beginning in 18 months? (c) What is the value of an FRA that promises to pay you 6% (with semiannual payment) on a principal of $1 million for the six-month period starting in 18 months? (d) If the six-month LIBOR rate were 6.5% in...
Suppose we have the following current spot rate curve: 6-month spot rate: 5%. 12-month spot rate: 9%. An investor firmly believes that the 6-month spot rate in 6 months will be 4%, and that you can borrow $4,621 at the current market rates. How much profit can this investor expect to make using the entire borrowed amount if her belief turns out to be true?