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Use the rates in Problem 4.14 to value an FRA where you will pay 5% for the third year on $1 million. The forward rate is 5.1% with continuous compounding or with annual compounding. The 3-year interest rate is 3.7% with continuous compounding. From equation (4.10), the value of the FRA is therefore . or $2,078.85. Problem 4.16. ................
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