Required: A bank sells a "three against six" $3,000,000 FRA for a three-month period beginning three months from today and ending six months from today. The purpose of the FRA is to cover the interest rate risk caused by the maturity mismatch from having made a three-month Eurodollar loan and having accepted a six-month Eurodollar deposit. The agreement rate with the buyer is 5.57 percent. There are actually 92 days in the three-month FRA period. Assume that three months from today the settlement rate is 4.910 percent. Determine how much the FRA is worth and who pays who-the buyer pays the seller, or the seller pays the buyer. Note: Round your intermediate calculations to 6 decimal places. Round your answer to 2 decimal places. Assume 360 days in a year. the absolute value of the FRA

Required: A bank sells a "three against six" $3,000,000 FRA for a three-month period beginning three months from today and ending six months from today. The purpose of the FRA is to cover the interest rate risk caused by the maturity mismatch from having made a three-month Eurodollar loan and having accepted a six-month Eurodollar deposit. The agreement rate with the buyer is 5.57 percent. There are actually 92 days in the three-month FRA period. Assume that three months from today the settlement rate is 4.910 percent. Determine how much the FRA is worth and who pays who-the buyer pays the seller, or the seller pays the buyer. Note: Round your intermediate calculations to 6 decimal places. Round your answer to 2 decimal places. Assume 360 days in a year. the absolute value of the FRA

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A $7,650.00 demand loan was taken out on March 4 at a fixed interest rate of 7.7% with fixed monthly payments of $1,200.00. The first monthly payment is due April 4 and the 4th of every month thereafter. Prepare a full repayment schedule for the loan. (Round all monetary values to the nearest penny.) (Use a minus sign before the dollar sign to denote a negative monetary value. For example, "-$149.63".) (Give all "Number of Days" quantities as fractions with denominator 365.) Date Balance before Transaction Annual Interest Rate Number Interest Accrued of Days Charged Interest Payment (+) or Advance (-) Principal Balance after Amount Transaction Mar 4 $7,650.00 Apr 4 7.7% May 4 7.7% Jun 4 7.7% Jul 4 7.7% Aug 4 7.7% Sep 4 7.7% Oct 4 7.7%
A bank is considering using a “three against six” $2,000,000 FRA to cover its potential loss. The purpose of the FRA is to cover the interest rate risk caused by the maturity mismatch from having made a six-month Eurodollar loan and having accepted a three-month Eurodollar deposit. The agreement rate with the buyer is 4.6%. There are actually 92 days in the three-month FRA period. Which one of following statements is correct? Group of answer choices If the settlement rate is 4.8% three months from today, then the buyer pays the seller. To hedge the loss caused by maturity mismatch, the bank should be a seller of the FRA. Without the FRA, the bank will lose if the market interest rate drops at the end of three months. If the settlement rate is 4.8% three months from today, then the FRA is worth $1009.84 To hedge the risk caused by maturity mismatch, the bank could take the buyer’s position if it uses the Euro-Dollar Interest Rate Futures…
A bank is considering using a “three against six” $2,000,000 FRA to cover its potential loss. The purpose of the FRA is to cover the interest rate risk caused by the maturity mismatch from having made a six-month Eurodollar loan and having accepted a three-month Eurodollar deposit. The agreement rate with the buyer is 4.6%. There are actually 92 days in the three-month FRA period. Which one of following statements is correct? Group of answer choices To hedge the risk caused by maturity mismatch, the bank could take the buyer’s position if it uses the Euro-Dollar Interest Rate Futures instead. To hedge the loss caused by maturity mismatch, the bank should be a seller of the FRA. If the settlement rate is 4.8% three months from today, then the buyer pays the seller. If the settlement rate is 4.8% three months from today, then the FRA is worth $1009.84 Without the FRA, the bank will lose if the market interest rate drops at the end of three months.
A borrower and lender negotiate a $38,000,000 interest-only loan at a 6.0 percent interest rate for a term of 15 years. There is a lockout period of 10 years. Should the borrower choose to prepay this loan at any time after the end of the 10th year, a yield maintenance fee (YMF) will be charged. The YMF will be calculated as follows: A treasury security with a maturity equal to the number of months remaining on the loan will be selected, to which a spread of 150 basis points (1.50%) will be added to determine the lender's reinvestment rate. The penalty will be determined as the present value of the difference between the original loan rate and the lender's reinvestment rate. Required: a. How much will the YMF be if the loan is repaid at the end of year 13 if two year treasury rates are 3 percent? If two-year treasury rates are 5.0 percent, what will be the lender's reinvestment rate? Note: Do not round intermediate calculations, Round "YMF" to the nearest dollar amount. Enter…
A credit union's Rate-Climber GIC pays rates of 21%, 26%, and 31% compounded semiannually in successive years of a three-year term. What will be the maturity value of $13,000 invested in this GIC? (Do not round Intermedote.colculations ond round your Anal answer to 2 declmal places.) Maturity value $1
The Royal Bank pays an interest rate of 0.6% on redeemable GICs and 0.75% on non-redeemable GICs. In order to retain the redemption privilege, how much interest must be sacrificed on an investment of $15,000 for 120 days?
A loan of £8,200 is to be repaid over a 11-year contract by three initial payments of £2,000, £2,000 and £4,000 at the end of years 2, 4 and 9, respectively. Hence, find a final amount £X at the end of year 11 that needs to be paid to fully clear the debt given that the lender charges an annual nominal rate of interest of 9.0% convertible monthly. ( correct answer = 8972.45, no tables, please, ONLY formulas)

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