Assume oil prices rise dramatically and the spot price of oil is $230 per barrel and the 3-year forward price is $245.Annualized 1-year,2-year,and 3 year interest rates are 4.2%,4.4%,and 4.6%,respectively.For a commodity-linked note to sell at par,what is the annual coupon?

Question

Quizplus · Accepted Answer

The correct answer is A because the annual coupon is $6.00. This can be calculated using the formula:Coupon = (Forward Price - Spot Price) * (1 + r)^-nwhere:* Forward Price = $245* Spot Price = $230* r = annualized interest rate* n = number of yearsPlugging in the values, we get:Coupon = ($245 - $230) * (1 + 0.042)^-3Coupon = $15 * 0.91514Coupon = $6.00

Assume Oil Prices Rise Dramatically and the Spot Price of Oil