Compute vlo''s fixed-floating and net cash payments

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Reference no: EM13204596

Suppose Valero Energy (VLO) is planning on buying 100,000 barrels of crude oil each month for the next 6 months. VLO is concerned that the price of crude oil will rise. To hedge risk, VLO, in December of this year, initiated a financial commodity swap with a swap dealer for 12 months at a fixed price of $85.50/bbl.
VLO is the fixed price payer (will pay fixed payments to and receive floating payments from the swap dealer).
Assume that the floating rate payments are based on settlement futures price of NYMEX light sweet crude on the final day of trading in the contract month.
Compute VLO's fixed, floating, and net cash payments (for the next 6 months), if NYMEX WTI futures prices at the end of the month for the next 6 months are as follows:
a). Jan $87.00/bbl b). Feb $83.00/bbl c). Mar $81.00/bbl d). April $84.00/bbl
e). May $87.00/bbl f). June $92.00/bbl

Reference no: EM13204596

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