Consider a swap contract. The floating leg of the contract makes a payment at the end...
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Consider a swap contract. The floating leg of the contract makes a payment at the end of each month, starting one month from now, equal to the spot price of natural gas at that time. The last payment on the swap contract will be 3 months from now. The fixed leg of the contract pays the same amount $X at the end of each month. Current futures prices for natural gas are F₁ = $39.3, F₂ = $40.6, F3 = $45.6 for the 1-, 2-, and 3-month contracts, respectively. Assume that the term structure of risk-free interest rates is flat, with the annual rate (continuously compounded) equal to rf = 1%. Compute the value of the fixed leg of the forward contract. X = $ Please round your answers to at least two digits. e.g., if the answer is 19/17, submit 1.12. 1.1 will be marked as incorrect! 1.1176 will be accepted. Make sure you provide the type of answer required. Pay special attention to units specified in the trailing text after the blanks. (e.g., %) When submitting your answer, make sure you do not leave empty blanks. Do not use % and $ signs. Consider a swap contract. The floating leg of the contract makes a payment at the end of each month, starting one month from now, equal to the spot price of natural gas at that time. The last payment on the swap contract will be 3 months from now. The fixed leg of the contract pays the same amount $X at the end of each month. Current futures prices for natural gas are F₁ = $39.3, F₂ = $40.6, F3 = $45.6 for the 1-, 2-, and 3-month contracts, respectively. Assume that the term structure of risk-free interest rates is flat, with the annual rate (continuously compounded) equal to rf = 1%. Compute the value of the fixed leg of the forward contract. X = $ Please round your answers to at least two digits. e.g., if the answer is 19/17, submit 1.12. 1.1 will be marked as incorrect! 1.1176 will be accepted. Make sure you provide the type of answer required. Pay special attention to units specified in the trailing text after the blanks. (e.g., %) When submitting your answer, make sure you do not leave empty blanks. Do not use % and $ signs.
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Answer I A swap contract on the natural gas is avai... View the full answer
Related Book For
Engineering Economy
ISBN: 978-0133439274
16th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Posted Date:
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