Solution for Chapter 7.pdfVIP

Solution for Chapter 7 Problem 1  Solution: $1,500,000 x (0.045 + .0125)/2 + $1,500,000 x (0.05375 +0.0125)/2  = $43,125 + $49,687.50 = $92,812.50. Problem 2  Since the settlement rate is less than the agreement rate, the buyer pays the seller (bank) the absolute value of the FRA. The absolute value of the FRA is:  $3,000,000 x [ ︱0.04875-0.055 ︱x 92/360]/[1 + (0.04875 x 92/360)]  = $3,000,000 x [0.001597/(1.012458)]  = $4,732.05