General Instructions LEASE READ THEM CAREFULLY
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The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented, marks may be reduced
for poor presentation. This includes filling your information on the cover page.
Students must mention question number clearly in their answer.
Late submission will NOT be accepted.
Avoid plagiarism, the work should be in your own words, copying from students or other
resources without proper referencing will result in ZERO marks. No exceptions.
All answered must be typed using Times New Roman (size 12, double-spaced) font. No
pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.
Assignment 3
Marks: 10 Marks
Q1. Assume that there is a forward market for a commodity. The forward price of the
commodity is $50. The contract expires in one year. The risk-free rate is 10
percent. Now, six months later, the spot price is $60. What is the forward
contract worth(Value) at this time?
(Marks-3)
Q2. What factors must one consider when deciding on the appropriate underlying asset
for a hedge?
(Marks-2)
Q3. Consider a $40 million notional principal interest rate swap with a fixed rate of 7.5
percent, paid quarterly on the basis of 90 days in the quarter and 360 days in the year.
The first floating payment(LIBOR rate) is set at 7.9 percent. Calculate the first
net payment and identify which party, the party paying fixed or the party paying
floating, pays.
(Marks-3)
Q4. Discuss the Interest rate swaption/Swaption and its types?
(Marks-2)

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