1. Delta utilizes 1,500,000 gallons of jet fuel every 3-months and wants to hedge its position buy entering into a swap contract to buy its jet fuel quarterly starting in 3 months. The risk-free rate for all horizons up to a year is 1.25% and the forward price of jet fuel per gallon is listed below. What would be the swap price of the 1,500,000 gallons of jet fuel each quarter for the next year?
Years Forward Price
0.25 $ 1.9300
0.5 $ 1.9350
0.75 $ 1.9450
1 $ 1.9500
2. You entered into a plain vanilla swap a while back where you pay 8% per annum with semiannual compounding on a notional principle of $100,000,000 with payments made semiannually. In exchange you receive a payment of LIBOR annuallya. Your swap has 1.25 years left until its termination date. The LIBOR rate was 7.25% per annum with semiannual compounding when you made your last payment. If today’s discount rates are per annum with continuous compounding as followed what is the value of your position?
Years Rate
0.25 7.25%
0.75 7.30%
1.25 7.35%