3.18 Company Z enters into a 5-year interest rate swap contract on 1 January 2015 as the fixed-rate payer party. The settlement period is 1 year. The set- tlement dates are 31 December of each year from 2015 to 2019. The spot rates of interest at the beginning of various years for investment horizons of t = 1, 2, 3, 4 and 5 years are given in the following table: t 1 Jan 2015 1 Jan 2016 1 Jan 2017 1 Jan 2018 1 Jan 2019 1 0.71% 0.79% 0.42% 0.31% 0.35% 2 1.43% 1.24% 0.34% 0.38% 0.64% 3 2.05% 1.72% 0.47% 0.57% 1.05% 4 2.94% 2.59% 0.95% 1.08% 1.78% 5 3.55% 3.24% 1.47% 1.58% 2.31% Spot Rates, Forward Rates and the Term Structure 103 (a) Assuming a level notional amount of $1 million for the contract, deter- mine the swap rate. (b) Suppose the contract is an accreting swap with notional amounts of $1 million, $3 million, $5 million, $7 million and $9 million. Determine the swap rate. (c) Suppose the contract is an amortizing swap with notional amounts of $5 million, $4 million, $3 million, $2 million and $1 million. Determine the swap rate. Copyrighted mate