(a) Company A has been offered the swap quotes in Table 7.3. It can borrow for three years at 3.45%. What floating rate can it swap this fixed rate into?

(b) Company B has also been offered the swap quotes in Table 7.3. It can borrow for five years at LIBOR plus 75 basis points. What fixed rate can it swap this rate into?

(c) Explain the rollover risks that Company B is taking.

Data from Table 7.3.

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Table 7.3 Bid and offer fixed rates in the swap market for a swap where payments are exchanged semiannually (percent per annum) Maturity (years) Bid Swap rate 2.55 2.565 2.97 2.985 3.15 3.170 3.26 3.40 3.48 2 3 4 5 7 10 Offer 2.58 3.00 3.19 3.30 3.44 3.52 3.280 3.420 3.500