Find the Approximate Market Value of a Long Position in an FRA

question 13

Multiple Choice

Find the approximate market value of a long position in an FRA at a fixed rate of 5 percent in which the contract expires in 20 days,the underlying is 180-day LIBOR,the notional amount is $25 million,the 20-day rate is 7 percent,and the 200-day rate is 8.5 percent.

• A)$433,658
• B)-$454,954
• C)$322,819
• D)-$322,819
• E)$454,954

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Definitions:

Variable Manufacturing Cost

Costs that vary with production volume, including direct materials, direct labor, and certain overheads.

Production Volume

The total quantity of units produced during a specific period.

Least-squares Regression

A statistical method used to determine the best-fitting line through a set of points by minimizing the sum of the squares of the offsets.

Squared Deviations

The squared differences between each data point in a set and the mean of that set, used in statistical analysis to measure variance.