1. If you need to borrow $5,000,000 in 2 months and want to hedge the interest rate for the following month using a 60-day LIBOR, using an FRA with is quoted at 10%, what would be your payoff (gain or loss) at expiration if the LIBOR rate is 9%?
a. –$8,153.67
b. –$8,309.10
c. –$8,305.65
d. –$8,210.18
e. –$8,257.64
2. Suppose gold has a t = 0 spot price of $1000. If the cost of carry model holds, what should be the forward price to the nearest dollar of a one-year forward? Assume storage and insurance costs are $50, payable in advance for the time period until expiration, and interest for borrowing is 10% annually.
a. $1,111
b. $1,122
c. $1,133
d. $1,144
e. $1,155