2. (20 pts) A borrower (Party A) has a loan with floating interest from a lender (Party B) that has payments of interest only at the end of each year for the next 3 years (and return of the principal at the end of 3 years) Suppose that the current term structure has effective annual zero coupon bond yields for 1, 2, and 3-years of 8%, 9% and 9.5% The notional amount of the loan is $10,000 The borrower A arranges an interest rate swap with a financial intermediary (Party C) for each year's interest payments. Under this arrangement, fixed interest rate will be determined now for A to pay C at the end of each year for the next three years, and C will pay the floating-rate interest payment to B After one year, the term structure is r = 7%,r2 = 7.5% A. Find the fixed interest rates that A will pay C for each of the 3 years. B. Determine the market value of the swap to the payer after one year 2. (20 pts) A borrower (Party A) has a loan with floating interest from a lender (Party B) that has payments of interest only at the end of each year for the next 3 years (and return of the principal at the end of 3 years) Suppose that the current term structure has effective annual zero coupon bond yields for 1, 2, and 3-years of 8%, 9% and 9.5% The notional amount of the loan is $10,000 The borrower A arranges an interest rate swap with a financial intermediary (Party C) for each year's interest payments. Under this arrangement, fixed interest rate will be determined now for A to pay C at the end of each year for the next three years, and C will pay the floating-rate interest payment to B After one year, the term structure is r = 7%,r2 = 7.5% A. Find the fixed interest rates that A will pay C for each of the 3 years. B. Determine the market value of the swap to the payer after one year