4.00% with semi-annual compounding.
Q1: What are the equivalent rates with continuous compounding?
Q2: What is the forward rate for the six-month period beginning in 12 months (i.e., F12,18)? If
you use Eq 4.5 or 4.6, convert the forward rate into semi-annual compounding rate.
Q3: What is the value of an FRA that pays you the forward rate in Q2 and you pay a fixed rate
of 4.25% (compounded semi-annually) on a principal of $1 million for the six-month period
starting in 12 months?
The solution is... View the full answer