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1.Consider the following interest rate swap Maturity: 10 years Notional amount: $10 million Receive 1-year T-bill rate Pay fixed 5-year fixed rate o5-year fixed rate
1.Consider the following interest rate swap
Maturity: 10 years
Notional amount: $10 million
Receive 1-year T-bill rate
Pay fixed 5-year fixed rate
o5-year fixed rate is currently 5%
(i)Calculate duration of swap for the fixed payment side.
(ii)If 5-year swap interest rate increases by 1%, how much does the one with the fixed payment loose? Note that swap contract exchanges only interest payments.
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