You Wish to Create a Synthetic Forward Rate Agreement in Which

question 17

Multiple Choice

You wish to create a synthetic forward rate agreement in which you would lock in a return between 150 and 310 days.The price of a 150-day zero coupon bond is 0.9823 and the price of 310-day zero coupon bond is 0.9634.What is the approximate yield on the synthetic FRA?

• A) 1.8%
• B) 2.0%
• C) 2.9%
• D) 3.8%

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Definitions:

Interest Rate

The interest rate that a borrower must pay to a lender in exchange for using borrowed funds.

Accrued Interest

Interest that's been accrued but is still pending payment or receipt.

Deposit

A sum of money placed in an account or with a third party as security or for future payment.

Days

Units of time measuring 24 hours, often used to calculate interest, maturity dates, and other financial time periods.