You Borrow Money at Libor with a Floating-Rate Note for One

question 22

Multiple Choice

You borrow money at Libor with a floating-rate note for one year with two semi-annual payments. What position do you need to add to this note to fix the cost of borrowing for the entire year?

• A) Sell a \(6 \times 12\) FRA.
• B) Buy a \(6 \times 12\) FRA.
• C) Buy a one-year zero-coupon bond and short a 1.5-year zero-coupon bond.
• D) Buy a six-month zero-coupon bond and short a one-year zero-coupon bond.

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