The current price of oil is $32.00 per barrel. Forward prices for 3, 6, 9, and 12 months are $31.37, $30.75, $30.14, and $29.54. Assuming a 2% continuously compounded annual risk-free rate, what is the annualized lease rate for each maturity? Is this an example of contango or backwardation?
Answer to relevant QuestionsGiven a continuously compounded risk-free rate of 3% annually, at what lease rate will forward prices equal the current commodity price? (Recall the copper example in Section 6.3.) If the lease rate were 3.5%, would there be ...a. Suppose the March Year 1 forward price were $3.10. Describe two different transactions you could use to undertake arbitrage. b. Suppose the September Year 1 forward price fell to $2.70 and subsequent forward prices fell ...As in the previous problem, consider holding a 3-year bond for 2 years. Nowsuppose that interest rates can change, but that at time 0 the rates in Table 7.1 prevail. What transactions could you undertake using forward rate ...Consider the following two bonds which make semiannual coupon payments: a 20 year bond with a 6% coupon and 20% yield, and a 30-year bond with a 6% coupon and a 20% yield. a. For each bond, compute the price value of a basis ...Using the information in Table 7.1, a. Compute the implied forward rate from time 1 to time 3. b. Compute the implied forward price of a par 2-year coupon bond that will be issued at time 1.
Post your question