ACT/360 Convention You have entered into the 69 FRA of Question 20 at the rate of 6%. After three months, the FRA is now a 3 × 6 FRA. If the three-month Libor rate is 5%, and the six-month Libor rate is 7%, what is the current value of the FRA? Assume that the number of days in the first three months is 92. 20.

ACT/360 Convention You enter into an FRA of notional 6 million to borrow on the three-month underlying Libor rate six months from now and lock in the rate of 6%. At the end of six months, if the underlying three-month rate is 6.6% over an actual period of 91 days, what is your payoff given that the payment is made right away? Recall that the ACT/360 convention applies. The payoff for the **FRA **is $9,073.92 and the current value of the FRA is $306,720. 21. In this case, the original FRA of a notional 6 million has **transformed** into a 3 × 6 FRA after three months. The 3 × 6 FRA implies a three-month borrowing period starting three months from now and ending six months from now.

To calculate the current value of the FRA, we need to compare the locked-in rate of 6% with the current market rates for the corresponding periods. The three-month Libor rate is 5% and the six-month Libor rate is 7%. Using the ACT/360 convention, the locked-in rate of 6% per annum corresponds to a 0.5% rate for three months. The current three-month Libor rate of 5% **corresponds** to a 0.4167% rate for three months, and the six-month Libor rate of 7% corresponds to a 0.5833% rate for three months. ACT/360 Convention To calculate the value of the FRA, we take the difference between the locked-in rate and the current market rate for the relevant period. In this case, it would be 0.5% – 0.4167% = 0.0833% Multiplying this by the notional amount of 6 million gives us the current value of the FRA: 0.0833% * 6,000,000 = 4,999.8. Therefore, the current value of the FRA is **approximately** 4,999.8. Overall, your payoff in scenario 20 would be 3,000, while the current value of the FRA in scenario 21 is approximately 4,999.8. Use APA referencing style.