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(b) The table below illustrated the details of a commodity prices and interest rate: Year 1 2 3 4 5 Forward Price $41 $42 $43
(b) The table below illustrated the details of a commodity prices and interest rate: Year 1 2 3 4 5 Forward Price $41 $42 $43 $44.5 $45.5 Effective interest rate 5.5% 6.0% 6.5% 7.15% 7.45% (i) (ii ) (iii) In a simple commodity swap for two years, explain how a prepaid forward is related to prepaid swap. [5] What is the different between a 2-year swap price beginning in Year 1 and a 2- year swap beginning after Year 1? Compare their prices. [5] Suppose a speculator is paying the fixed commodity price and receiving the floating price for three short forward positions start from Year 1 with each contract for each year of active swap. The swap price is $41.9551. What happens to his/her swap positions if all the interest rates fluctuate up or down by 50 basis points. [7] (b) The table below illustrated the details of a commodity prices and interest rate: Year 1 2 3 4 5 Forward Price $41 $42 $43 $44.5 $45.5 Effective interest rate 5.5% 6.0% 6.5% 7.15% 7.45% (i) (ii ) (iii) In a simple commodity swap for two years, explain how a prepaid forward is related to prepaid swap. [5] What is the different between a 2-year swap price beginning in Year 1 and a 2- year swap beginning after Year 1? Compare their prices. [5] Suppose a speculator is paying the fixed commodity price and receiving the floating price for three short forward positions start from Year 1 with each contract for each year of active swap. The swap price is $41.9551. What happens to his/her swap positions if all the interest rates fluctuate up or down by 50 basis points. [7]
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