CFA Practice Question

CFA Practice Question

The notional amount for a 6x9 FRA is $5 M. The fixed rate is 4%. On settlement date (180 days from when contract was entered into) the 90 day Libor rate is 5.5%. What are the cash flows for the long is closest to?
A. $18,681
B. $18,496
C. $18,750
Explanation: Undiscounted Cash Flow = Notional Amount * (Floating - Fixed) * (90/360) = $18,750 After discounting we get actual cash flow from FRA to be = Cash Flow from FRA = $18,750 / (1+(0.055*(90/360))) = $18,496

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