Question

In: Finance

Bankers Trust sells a "six against nine" $10,000,000 forward rate agreement (FRA) on a 30month (91...

Bankers Trust sells a "six against nine" $10,000,000 forward rate agreement (FRA) on a 30month (91 days), 5 percent loan, which it funds with a 4.5 percent Eurodollar CD. If the agreement rate is 5 percent and the settlement rate is 4.5 percent then:

Multiple Choice

A.the buyer pays the seller $12,497.

B.the seller pays the buyer $12,639.

C. The seller pays the buyer $12,497.

D. the buyer pays the seller $12,639.

E. No payment is made because the settlement rate and the CD rate are the same.

Solutions

Expert Solution

A.the buyer pays the seller $12,497.

=(5%-4.5%)*91/360*10000000/(1+4.5%*91/360)
=12496.7385

jeff jeffy answered 2 years ago
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