In September 2014 swap dealers were quoting a rate for five-year euro interest-rate swaps of 4.5% against Euribor (the short-term interest rate for euro loans). Euribor at the time was Commodity Spot Price Futures Price Comments Magnoosium $2,550 per ton $2,728.50 per ton Monthly storage cost  monthly convenience yield Frozen quiche $.50 per pound $.514 per pound Six months’ storage costs  $.10 per pound; six months’ convenience yield 

$.05 per pound.

Nevada Hydro 8s of 2002 77 78.39 4% semiannual coupon payment is due just before futures contract expires.

Costaguanan pulgas (currency) 9,300 pulgas  $1 6,900 pulgas  $1 Costaguanan interest rate is 95% per year.

Establishment Industries common stock

$95 $97.54 Establishment pays dividends of $2 per quarter.

Next dividend is paid two months from now.

Cheap white wine $12,500 per 10,000-gal. tank

$14,200 per 10,000-gal. tank Six months’ convenience yield  $250 per tank.

Your company has surplus storage and can store 50,000 gallons at no cost.

◗ TABLE 26.4 Spot and six-month futures prices for selected commodities and securities. See Problem 19.

Visit us at www.mhhe.com/bma Chapter 26 Managing Risk 673 4.1%. Suppose that A arranges with a dealer to swap a €10 million five-year fixed-rate loan for an equivalent floating-rate loan in euros.

a. What is the value of this swap at the time that it is entered into?

b. Suppose that immediately after A has entered into the swap, the long-term interest rate rises by 1%. Who gains and who loses?

c. What is now the value of the swap?

AppendixLO1