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.