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1. Define the terminal value of the following portfolio: a long forward contract on an asset and a long position in a European put option on the asset with the same maturity as the forward contract and a strike price that is equal to the forward price of the asset at the time the portfolio is set up. Show that the European put option has the same value as a European call option with the same strike price and maturity. 2. A financial institution has entered into a 10-year currency swap with company Y. Under the swap terms, the financial institution receives interest at 3% per annum in Swiss francs and pays interest at 8% per annum in U.S. dollars. Interest payments are exchanged once a year. The principal amounts are 7 million dollars and 10 million francs. Suppose that company Y declares bankruptcy at the end of year 6, when the exchange rate is $0.80 per franc. What is the cost to the financial institution? Assume that, at the end of year 6, the interest rate is 3% per annum in Swiss francs and 8% per annum in U.S. dollars for all maturities. All interest rates are quoted with annual compounding. 3. Find the forward cost of a 10-month forward contract on a stock when the stock price is $50. We assume that the risk-free interest rate (continuously compounded) is 8% per annum for all maturities. a. The stock pays no dividend till maturity. b. The stock pays dividends of $0.75 per share are expected after 3 months, 6 months, and 9 months.