Consider a one-year commodity swap with semiannual payments. The current spot price is $50 and the six-month and one-year forward prices are both $60. The riskless interest rate is 5% (compounded continuously). What is a fair “fixed price” for the swap?

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Answer rating: 100% (QA)

To determine the fair fixed price for the commodity swap we need to consider the principle of noarbitrage In a fair swap the present value of the fixe... View the full answer