# This flashcard is just one of a free flashcard set. See all flashcards!

47

The yield curve is flat at 6% per annum. What is the value of an FRA where the holder receives interest at the rate of 8% per annum for a six-month period on a principal of $1,000 starting in two years? All rates are compounded semiannually.

A.$9.12

B.$9.02

C.$8.88

D.$8.63

A.$9.12

B.$9.02

C.$8.88

D.$8.63

Answer: D

The value of the FRA is the value of receiving an extra 0.5×(0.08−0.06)×1000 = $10 in 2.5 years. This is 10/(1.035) = $8.63

The value of the FRA is the value of receiving an extra 0.5×(0.08−0.06)×1000 = $10 in 2.5 years. This is 10/(1.035) = $8.63

Flashcard info:

Author: CoboCards-User

Main topic: Finance & Investment

Topic: Derivatives

Published: 27.10.2015