Answer: Company receives $24,631

## Explanation ### FRA Settlement Calculation **Given:** - Notional amount: $10,000,000 - Fixed rate (Rk): 5.0% (paid by company) - Actual floating rate: 6.0% (received by company) - Time period: 90 days = 90/360 = 0.25 years - Quarterly compounding - Settlement in advance (T=1.0) **Step 1: Calculate the interest rate differential** The company pays fixed (5.0%) and receives floating (6.0%), so the net position is: 6.0% - 5.0% = 1.0% advantage to the company **Step 2: Calculate the settlement amount** For settlement in advance, we use the formula: \[ \text{Settlement} = \frac{\text{Notional} \times (L - Rk) \times \frac{\text{Days}}{360}}{1 + L \times \frac{\text{Days}}{360}} \] Where: - L = 6.0% = 0.06 - Rk = 5.0% = 0.05 - Days/360 = 90/360 = 0.25 \[ \text{Settlement} = \frac{10,000,000 \times (0.06 - 0.05) \times 0.25}{1 + 0.06 \times 0.25} \] \[ \text{Settlement} = \frac{10,000,000 \times 0.01 \times 0.25}{1 + 0.015} \] \[ \text{Settlement} = \frac{25,000}{1.015} \] \[ \text{Settlement} = 24,630.54 \approx \$24,631 \] **Step 3: Determine payment direction** Since the company receives the higher floating rate (6.0%) and pays the lower fixed rate (5.0%), the company **receives** the settlement amount. **Therefore, the company receives $24,631** (Option C). This payment compensates the company for the fact that they could have borrowed at a lower rate in the market, but are locked into paying 5.0% fixed.

Author: LeetQuiz Editorial Team