Homework Answers
D) The counterparty pays $3,085 at the end of 3 months
Explanation:
Fra =notional principal× (Rate at settlement - Fra rate) × n/360 / (1+ rate of settlement × n/360)
= 5,000,000 × { ( 0.0525 - 0.05) × 90/360 } / (1+ 0.0525 × 90/360)
= 5,000,000 × (0.0025/ 4 ) / (1 + 0.013125)
= 5,000,000 × 0.000625 / 1.013125
= 5,000,000 × 0.0006169031
= 3,085
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