#### blackbird926

##### New Member

**Q1. Suppose a firm has purchased a 3s6s Forward Rate Agreement at a rate of 4% on a notional principal of €10m. Suppose at t=3, the 3 month spot rate is 4.7%. Calculate the payment made under the FRA.**

I worked out as follows:

10m * ((.047/4 - .04/4)/1+.047/4) = 17296.76303; The payment made under the FRA at t=3 is €17296.76.

**Q2. From Q1, suppose at t=1 the spot 2 month rate is 4.2% while the 2f5 forward rate is 4.35%. Calculate the value of the FRA at t=1.**

I worked out as follows: 10m(.04-.0435/1.0435) = -33540.97

Discount back to period t=1.

-33540.97/(1+.042/6) = -33540.97/1.007

= -33307.81529

The value of the FRA at t=1 is €-33307.82.

For the second question in particular, I am unsure as to whether I have worked this out correctly. I would appreciate any assistance. Also, it's a pleasure to join the site as a new member and I look forward to contributing to discussions.

Best regards and many thanks,

Michael