2a. Firms A and B have a swap agreement for the next two years with payments to be made every six months. The terms are LIBOR for 5%. The notional principal is $100M. If LIBOR term structure drops to a flat 4.5% per annum, which of the following statements is correct?

A) The swap buyer will owe its counterparty $250,000 each time

B) The value of the swap to the buyer will rise by $946,185

C) The buyer of the swap will face counterparty default risk

2b. The 5-year CDX NA IG index is quoted by a market maker as bid 170 bp, ask (offer) 175 bp. This index includes 125 North American investment-grade companies. Suppose you want $800,000 of protection for each company. How much per year will you pay in CDS premia?

A)		800,000
B)		1,750,000
C)		None of the above