Can you explain the green lines

by | Sep 15, 2021 | Homework Help

Can you explain the green lines? Why the present value at time 3 is B(3,4) multiple by (1+f)?O The notional principal is L N = 100. o The F RA is written on the reference rate which equals the spot interestrate at time 3, R(3). 0 The cash payoff at the FRA’s payment date (time 4) is [R(3) -fm]100 = [1 + R(3) – (1 +fFRA)]100where we rewrite the payoff by adding and subtracting “1”.0 Moving back one period and computing the time 3 present value of the time 4 F RA payoff gives[1 — (1 +fm)B(3,4)1100. I I Multiplying (1 +fER i) at

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