Q5

September December 0.96 0.94 The table shows the information in March. Maturity June Treasury Zero-Coupon Bond 0.98 Price Interest Rate Swap (i) Oil Forward Price 20 Oil Swap Price (iv) (ii) 22 (v) (iii) 24 (vi) (a) For (i) to (vi), use the information in the table and construct the set of fixed rates of the interest rate swaps and the swap prices for oil for 3 through 9 months. The swap settlements occur every quarter. (6 marks) (b) i) Consider the 9-month oil swap. 6 months later, the oil price is $30/barrel. If cash settlement occurs, how much is the payment (negative sign for receipt) of the floating price payer at t=6 months on a 1,000-barrel swap agreement? (3 marks) ii) After the settlement above, what is the value of the swap? Given than the 3-month interest rate at that time is 2% effectively. Assume the dividend yield (lease rate) of oil is negligible. (3 marks) (c) What is the swap price of a 2-quarter oil swap with the first settlement occurring 2 quarters later? (3 marks) September December 0.96 0.94 The table shows the information in March. Maturity June Treasury Zero-Coupon Bond 0.98 Price Interest Rate Swap (i) Oil Forward Price 20 Oil Swap Price (iv) (ii) 22 (v) (iii) 24 (vi) (a) For (i) to (vi), use the information in the table and construct the set of fixed rates of the interest rate swaps and the swap prices for oil for 3 through 9 months. The swap settlements occur every quarter. (6 marks) (b) i) Consider the 9-month oil swap. 6 months later, the oil price is $30/barrel. If cash settlement occurs, how much is the payment (negative sign for receipt) of the floating price payer at t=6 months on a 1,000-barrel swap agreement? (3 marks) ii) After the settlement above, what is the value of the swap? Given than the 3-month interest rate at that time is 2% effectively. Assume the dividend yield (lease rate) of oil is negligible. (3 marks) (c) What is the swap price of a 2-quarter oil swap with the first settlement occurring 2 quarters later