Instead of paying one lump sum, suppose the swap buyer would prefer three equal payments for...

Transcribed Image Text:

Instead of paying one lump sum, suppose the swap buyer would prefer three equal payments for the swap, with one payment at the end of Year 1, one payment at the end of Year 2, and one payment at the end of Year 3. How much is each payment? (2 points) Suppose the spot price for gold in 1 year is $1295.00. If the swap buyer is the fixed price payer, show the cash flows paid and received by the swap buyer at the end of Year 1. (2 points) Show the net cash flow for the swap buyer at the end of year 1. Also show the net price paid for gold by the swap buyer. What is another name for the net price paid? (3 points) Does the swap buyer (fixed price payer) expect higher prices or lower prices over the life of the swap? Explain your reasoning. (2 points) Instead of paying one lump sum, suppose the swap buyer would prefer three equal payments for the swap, with one payment at the end of Year 1, one payment at the end of Year 2, and one payment at the end of Year 3. How much is each payment? (2 points) Suppose the spot price for gold in 1 year is $1295.00. If the swap buyer is the fixed price payer, show the cash flows paid and received by the swap buyer at the end of Year 1. (2 points) Show the net cash flow for the swap buyer at the end of year 1. Also show the net price paid for gold by the swap buyer. What is another name for the net price paid? (3 points) Does the swap buyer (fixed price payer) expect higher prices or lower prices over the life of the swap? Explain your reasoning. (2 points)

Answer rating: 100% (QA)

1To calculate the equal payments for the swap buyer we need to divide the total swap price by the nu... View the full answer