What must the forward rate agreed upon be so that there is


On September 20, 2016, you enter into a forward rate agreement (notional = $10mm) with a bank for the period of Mar 20, 2017 to Sep 20, 2017 (6 months later to 1 year later). The current price of a 6-month zero coupon bond is $98.79 and the current price of a 1-year zero coupon bond is $96.51.

(a) What must the forward rate agreed upon be so that there is no arbitrage?

(b) What is the value of the FRA at inception?

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Financial Management: What must the forward rate agreed upon be so that there is
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