Let’s assume we are a heating oil delivery service company that sells 80,000 gallons of heating oil every month its clients. The firm wants to hedge its position buy entering into a contract to buy its heating oil at the end of each month for the following month. The firm has decided it only needs to hedge for the next 5 months as the demand for heating oil significantly falls off after that. What would be the swap price of the 80,000 gallons of heating oil at the end of each month for the next 5-months if the following information is true? (Risk-free rate is provided per annum with continuous compounding) Month Forward Price Risk-Free Rate 1 $ 2.999 1.50% 2 $ 3.009 1.50% 3 $ 3.039 1.60% 4 $ 3.075 1.75% 5 $ 3.105 1.75%

Let’s assume we are a heating oil delivery service company that sells 80,000 gallons of heating oil every month its clients. The firm wants to hedge its position buy entering into a contract to buy its heating oil at the end of each month for the following month. The firm has decided it only needs to hedge for the next 5 months as the demand for heating oil significantly falls off after that. What would be the swap price of the 80,000 gallons of heating oil at the end of each month for the next 5-months if the following information is true? (Risk-free rate is provided per annum with continuous compounding) Month Forward Price Risk-Free Rate 1 $ 2.999 1.50% 2 $ 3.009 1.50% 3 $ 3.039 1.60% 4 $ 3.075 1.75% 5 $ 3.105 1.75%

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter7: International Arbitrage And Interest Rate Parity

Section: Chapter Questions

Problem 3SBD

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