Suppose a company enters into an fra that specified it will, Financial Management

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Suppose a company enters into an fra that specified it will

Suppose a company enters into an FRA that specified it will receive a fixed rate of 5% on a principal of $1 million for 6-month period starting 1.5 year.

Some bond information is shown in the following table:

Principal Maturity Annual coupon* Bond Price ($)

100 0.5 0 95.0

100 1.0 6 92.0

100 1.5 8 97.0

100 2.0 12 102.0

Half the stated coupon is assumed to be paid every 6 months. Can you help to evaluate the value of this FRA contract?

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Financial Management: Suppose a company enters into an fra that specified it will

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