Suppose a financial institution wants to invest \(\$ 100\) million in a three-year floatingrate note. Suppose the institution can invest in a three-year, \(7 \%\), fixed-rate note paying coupons on a semiannual basis and selling at par and also in a three-year FRN paying LIBOR plus \(100 \mathrm{bp}\).

a. Explain how the institution could create a synthetic three-year floating-rate note with a swap.

b. What would the fixed rate on the swap have to be for the synthetic position to be equivalent to the floating-rate note? Show the synthetic position in a table.

c. Define the institution's criterion for selecting the synthetic investment.