1. On-market Interest Rate Swap If the dealer's mid-rate for 5-year swaps is 9.45%, (Dealer pays subtract 10 bpts, dealer receives add 10 bpts) construct a five year plain vanilla interest rate swap between Laurel Ltd and Hardy Ltd who are in the following position:

Income Liability Laurel Ltd: AUD 10 million AUD 10 million @AUD libor+2.5% @ 9.0% p.a. Hardy Ltd: AUD 10 million AUD 10 million @ 11% p.a. @ AUD libor-0.5% Diagram all interest flows. 2. Cash-flows Calculate all payments that would be exchanged between Laurel and Hardy as a result of the swap, if 6-month AUD libor was as follows: Time (months) Libor (% pa) O 8.95 9.05 12 9.20 18 9.40 24 9.60 32 9.60 36 9.70 42 9.75 48 9.75 54 9.75 60 9.70