Business, 09.08.2021 20:30, kaylaamberd

Polaris buys the forward rate agreement (FRA) from an insurance company. According to the contract, if LIBOR rises above 4%, the initial forecast, the insurance company would pay to Polaris at the end of each year the difference between the LIBOR and 4%. In the opposite case, i. e., if LIBOR falls below 4%, Polaris would pay the difference between 4% and real LIBOR to the insurance company. The purchase of the forward rate agreement will cost $200,000, paid at the time of the initial loan. Calculate the all-in-cost (AIC) of the loan based on the assumption that the LIBOR rate jumps to 5.00% after the first year.

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Polaris buys the forward rate agreement (FRA) from an insurance company. According to the contract,...