Exercise 1 (1 mark for each part). Consider a swap with fixed rate K starting at To and ending at T, (a) Express the value of the swap V (t) in terms of only zero coupon bond prices. (b) Assume t = To = 0, Tn = n and = 1 . Find numbers 1 and u (depending on n and K but not on any interest rates) such that in other words, V (t) is bounded below by l and above by u). Justify your answer. Hint: What is the smallest a ZCB price can be? What is the largest? (c) Consider a forward contract on a stock with price St at t. Let K be the delivery price and T be the maturity. Is the value of the forward contract VK (t, T) necessarily bounded above or below? Explain. You can assume for simplicity that the stock pays no income