The Simplest Stock Valuation Formula

By , November 12, 2014 9:30 am

Deriving the Forward Rate Agreement Settlement Formula

By , November 7, 2014 8:30 am

When the interest rate increases from Commencement date to Settlement date, the buyer incurs higher cost of debt.

The difference in cashflow between the actual debt and the theoretical debt on Commencement date rate is

Thus, the settlement amount under the FRA is equal to the difference.

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