Suppose that 1-, 2-, and 3-year crude oil forward prices are 55, 60, and 65 per barrel. The 1-year spot rate is 6% (EAR), the 2-year spot rate is 7% (EAR), and the 3-year spot rate is 7.5% (EAR).

a)What is the swap price (per barrel) for a 3-year swap?

b)Suppose that we customize the swap so that the price in the first yearis $57per barrel(that is, atthe year-1 settlement,the party who is paying the fixed side of the swap will pay $57per barreland the party who is receiving fixed will receive $57 per barrel). What must be theswap price (per barrel) for years 2 and 3?