Assume that there is a forward market for a commodity. The forward price of thecommodity is $50. The contract expires in one year. The

Assume that there is a forward market for a commodity. The forward price of thecommodity is $50. The contract expires in one year. The

Learning Goal: I’m working on a business question and need an explanation and answer to help me learn.

Assignment 3
Submission Date by students: 13 Nov 2022-11:59 PM(sunday)
Place of Submission: Students Grade Centre via blackboard.
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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