1. Bank of America enters into a 3-year plain vanilla SWAP contract with AllState Insurance. The notional value of the contract is $100 million. Bank of America agrees to pay a fixed rate of interest of 3%, while AllState will pay LIBOR+1%. Payments will be settled at year-end during the next three years. Assume the following year-end LIBOR rates: Year 1: LIBOR= 3% Year 2: LIBOR = 3.5% Yea 3: LIBOR = 2% Given the structure of the SWAP contract above, describe Bank of America's (AllState's) exposure to interest rate risk (i.e. which institution is exposed to an increase/decrease in interest rates). Compute the SWAP payments each year based on the above LIBOR rates. Indicate the amount of the payment as well as which institution receives the payment each year. You can follow the format below. Year Payment amount Who receives the payment? 1 2 3 1. Bank of America enters into a 3-year plain vanilla SWAP contract with AllState Insurance. The notional value of the contract is $100 million. Bank of America agrees to pay a fixed rate of interest of 3%, while AllState will pay LIBOR+1%. Payments will be settled at year-end during the next three years. Assume the following year-end LIBOR rates: Year 1: LIBOR= 3% Year 2: LIBOR = 3.5% Yea 3: LIBOR = 2% Given the structure of the SWAP contract above, describe Bank of America's (AllState's) exposure to interest rate risk (i.e. which institution is exposed to an increase/decrease in interest rates). Compute the SWAP payments each year based on the above LIBOR rates. Indicate the amount of the payment as well as which institution receives the payment each year. You can follow the format below. Year Payment amount Who receives the payment? 1 2 3