Impact on earnings of an option and an interest rate swap. Millikin Corporation has decided to hedge two transactions. The ?rst transaction is a forecasted transaction to sell 500 tons of inventory in 60 days. The company is concerned that selling prices may decline, and it acquired a 60-day option to buy inventory at a price of $1,200 per ton. Upon acquiring the option, the company paid a premium of $10 per ton when the spot price was $1,201. At the end of 30 days, the option had a value of $19 per ton and a current spot price of $1,214 per ton. Upon expiration of the option, the spot price was $1,216 per ton.
In another transaction the company borrowed $3,000,000 at a ?xed rate of 8%; after three months, the company became concerned that variable rates would be lower than 8%. In response, the company entered into an interest rate swap whereby it paid variable rates to a counterparty in exchange for a ?xed rate of 8%. The reset rate for the ?rst 30 days of the swap was 8.1% and was 7.8% for the second 30 days of the swap. The fair value of the swap was $3,000 after the ?rst 30 days and $3,300 after 60 days.
Determine the impact on earnings of the above hedges for the ?rst and second 30-day period.