Given zero-coupon bond yields are 2.0%,2.5%,and 2.8% in years 1,2,and 3,respectively,calculate the prepaid swap price for corn.Assume corn forward prices for the proceeding 3 years are $5.00,$5.20,and $5.35,respectively.
A) $14.87
B) $15.04
C) $16.12
D) $16.20

Question

Quizplus · Accepted Answer

The prepaid swap price is calculated by discounting the forward prices using the zero-coupon bond yields. The formula is: Prepaid Swap Price = (Forward Price Year 1 / (1 + Yield Year 1)) + (Forward Price Year 2 / (1 + Yield Year 2)^2) + (Forward Price Year 3 / (1 + Yield Year 3)^3). Plugging in the values: $5.00 / 1.02 + $5.20 / (1.025)^2 + $5.35 / (1.028)^3 = $14.87.

Given Zero-Coupon Bond Yields Are 2