MA373 F15 Homework Chapter 8 DM Solutions

MA373 F15 Homework Chapter 8 DM Solutions - 1 You are given...

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December 3, 2015 Copyright Jeff Beckley 2013, 2015 1. You are given the following spot yield curve: Time Spot Rate Forward Rate of Gold 1 4.00% 1000 2 5.00% 980 3 5.75% 970 4 6.25% 965 5 6.50% 962 You want to enter into a swap on gold which will allow you to purchase 100 carats of gold at the end of one year and another 100 carats of gold at the end of 2 years. Calculate the swap rate per carat of gold. Solution: 2 2 (0, ) ( ) (0, ) 1 1 (100) (1000) (100) (980) 1.04 1.05 990.29 1 1 (100) (100) 1.04 1.05 t t Q P t f t R Q P t

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December 3, 2015 Copyright Jeff Beckley 2013, 2015 2. (F11PR) You are given: Year Oil Forward Price Zero Coupon Bond Price 1 132 0.90 2 140 Z The price of 2 year oil swap which provides two barrels of oil at the end of one year and five barrels of oil at the end of two years is 137.60. Calculate Z. Solution (2)(132)(0.9) (5)(140)( ) (2)(137.60)(0.9) (5)(137.60)( ) (5)(140)( ) (5)(137.60)( ) (2)(137.60)(0.9) (2)(132)(0.9) (2)(137.60)(0.9) (2)(132)(0.9) 0.84 (5)(140) (5)(137.60) Z Z Z Z Z 3. (F11PR) You are given the following table. Year 1 2 3 4 5 Zero Coupon Bond Price 0.960 .915 0.865 .810 .755 Oil Forward Price 100 99 95 91 85 Julie will buy 1 million barrels of oil at the end of each year for the next three years.
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