1.4 A company's investments earn LIBOR minus 0.5%.

Table 1: Swap quotes made by the market maker (Percent per annum)

Maturity (vears) Bid Offer Swap Rate

2 2,5 2,58 2,565

3 2,97 3,00 2,985

4 3,15 3,39 3,170

5 3,29 3,30 3,280

7 3,40 3,44 3,420

10 3,48 3,52 3,500

Use Table 1 to explain how the company can use the quoted rates to correct the investments to

(a) Two-year fixed rate investment

(b) Sevenyear fixed-rate investments.

(c) The company also borrowed money at 5J% for five years and wishes to convert this

borrowing to a floating-rate liability by making use of the swap quotes in table 1, explain

how this can be done.