(4) Firm IBM is in a newly-initiated one-year swap where at the end of the year it pays 10%/year in sterling and receives 8%/year in dollar, plus the exchange or principle at the beginning and end of the year. The principal amounts in the two currencies are $15 million and 10 million pounds. The current exchange rate is $1.5 per pound. The one-year simple interest rates are 5% for US and 8% for UK.

(a) What is the value of the swap to IBM?

(b) Can you change the principal amounts to make this swap have an initial value zero?