Suppose oil forward prices for 1 year, 2 years, and 3 years are 20, 21, and 22 respectively. Let the 1-year annual effective interest rate be 6%, the 2-year interest rate be 6.5% and the 3-year interest rate be 7%. Suppose you are the fixed-rate payer in the swap. a) Find the forward rate for year two, f1,2

b) Find the forward rate for year three, f2,3

c) Let t = 1. How much have you overpaid or underpaid relative to the forward price after the first swap settlement?

d) Let t = 2. What is the cumulative overpayment or underpayment after the second swap settlement? (Be sure to account for interest).

e) Let t = 3. What is the cumulative overpayment or underpayment after the third swap settlement? (Be sure to account for interest).