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Year 1 2 3 4 Oil forward price (in $) 21.1 20.5 20 19.8 Gas swap price (in $) 2.4236 2.2404 2.2326 2.2044 Zero-coupon bond

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Year 1 2 3 4 Oil forward price (in $) 21.1 20.5 20 19.8 Gas swap price (in $) 2.4236 2.2404 2.2326 2.2044 Zero-coupon bond price (in $) 0.9701 0.9388 0.9075 0.8763 1. Using the zero-coupon bond prices and natural gas deferred fixed-rate swap prices in the above table, what are gas forward prices for each of the 4 years? (Hint: think bootstrapping) 2. Given a 4-year oil swap price of $20.43, construct the implicit loan balance for each quarter over the life of the swap. (Remember, swaps are nothing more than forward contracts coupled with borrowing and lending money)

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