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Suppose that the forward rate today for the period between 1 year and 2 years in the future is 7% (with annual compounding) and that sometime ago a company entered into an FRA where it will receive 5% (with annual compounding) and pay SOFR (market rate) on a principal of $100 million for the period.
Today the 2-year zero rate rate is 6.5%.
What is the value of the FRA this company has entered into to get paid 5%, now that the forward rates have gone from 5% to now being 7%?
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