You are the borrower in an fra where you will pay 5 annual, Financial Management

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You are the borrower in an fra where you will pay 5 annual

You are the borrower in an FRA where you will pay 5% (annual compounding) for the third year on $1 million. Write down the calculate process.

(1) The current forward interest rate for the third year is 5.1% (annual compounding). The 3-year zero rate is 4% (annual compounding). What is the value of the FRA to you now?

(2) Suppose at the beginning of the third year, the 1-year zero rate proves to be 5.5% (annual compounding). What is the value of the FRA to you at this time?

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Financial Management: You are the borrower in an fra where you will pay 5 annual

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