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:

Producing

The act of creating, manufacturing, or generating goods or services.

Profit

The financial gain realized when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Marginal Cost

Marginal cost is the cost of producing one additional unit of a product or service, a crucial concept in economics for determining optimal production levels and pricing strategies.

Marginal Revenue

The surplus earnings acquired through the sale of an extra product or service unit.