4.(a)Your company has a five year floating rate bank loan at current rates. If the expected floating
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Question:
4.(a)Your company has a five year floating rate bank loan at current rates. If the expected floating rates are1% for the first three years and then2% for year 4 and3% for year 5, what is a fair fixed rate in an interest rate swap? Calculate based on the present value of theexpected paymentsusing continuous compounding and semi-annual payments.
(b) Do you have high or low counterparty risk in this swap? Explain.
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