QUESTION SIX a) You are offered a Forward Contract to purchase a non-dividend paying share at a price of F0 in 3 months time. If the Spot Price (So) of the share is 8.50 and the 3 month (continuously compounded) interest rate is 5%, calculate the fair value of the Forward Price, Fo. [3 marks] b) You are offered a Forward Contract to purchase a commodity at a price of F0 in 6 months time. The Spot Price (S0) of the commodity is 60.00 and the 6 month (continuously compounded) interest rate is 4%. If the commodity (if owned) would incur storage costs of 3% (continuously compounded), calculate the fair value of the Forward Price, F0. [3 marks] d) Explain the difference between a Credit Default Swap and a Total Return Swap. [6 marks] e) Explain the concepts of Margin, Initial Margin and Margin Calls in the context of buying a Futures Contract. [4 marks] f) Some financial Futures contracts (e.g. bond Futures) give the seller a choice of the exact security that is delivered at maturity. What is the consequence of this choice for the price of the Futures and the security concerned? [4 marks] [Total 20 marks] END OF QUESTION SIX