Question: mr ben would like to borrow dollar10000 in the next...
Mr. Ben would like to borrow $10,000 in the next 9 months, which is expected to expire in another 9 months. The reason why he does not want to enter the lending contract immediately is because he would like to wait until next 9 months to have his saving account being able to afford the loan repayment. The bank offers him to enter a forward rate agreement (FRA). He sorted out the current interest rate from his favorite bank, as follows:
9 month interest rate: 3-4%.
18 month interest rate: 3.5-4.5%
If you are Mr. Ben, what is the maximum FRA price you would accept to enter the FRA?