Respond to the following questions.
1.Assume
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that oil forward prices for 1 year, 2 years, and 3 years are $18, $19, and $20. The 1-year effective annual interest rate is 6.5%, the 2-year interest rate is 7.0
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%, and the 3-year interest rate is 7.5%.

a. What is the 3-year swap price?

b. What is the price of a 2-year swap beginning in one year? (That is, the ?rst swap settlement will be in 2 years and the second in 3 years.)

2.You are the financial manager of a company and you are presented with this scenario: The exchange rate is 0.95
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$/€, the euro-denominated continuously compounded interest rate is 4%, the dollar-denominated continuously compounded interest rate is 6%, and the price of a 1-year 0.93-strike European call on the euro is $0.0571
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. Calculate the price of a 0.93-strike European put.
3.Given
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the call and put prices below

Strike 55 60 65
Call premium 20 16 11.50
Put premium 9 12.7516.45

a. What are convexity violations for the call and put premiums?

b. What spread you would you use to effect arbitrage?

c. Demonstrate that the spread position is an arbitrage.

Complete your 2-4 page response using Microsoft Word or Excel. For calculations, you must show work to receive credit. Your well-written response should be formatted according to CSU-Global Guide to Writing and APA Requirements, with any sources properly cited. Upload your completed work to the Module4 folder.

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Posted on May 22, 2016Author TutorCategories Question, Questions