A corporation enters into a $ 100 million notional amount 3 year interest rate swap. The swap calls for the corporation to pay a fixed rate and receive a floating rate of 12 month LIBOR. The payments will be made once a year. The 12 month LIBOR forward curve (with 30/360 day basis) when the swap is initiated is as follows:

1. Determine the fixed rate of the swap.

(Let X be the fixed rate and recall Sum of PV (float) = Sum of PV(fixed))

		12 month LIBOR Rate	Corresponding
Time		(Forward Rate)	Discount Factor
Today (Spot)		3.50%	0.9662
In 1 year		4.00%	0.9290
In 2 years		4.50%	0.8890
Sum			2.7842

b. Calculate the first net payment on the swap (please indicate the position from the corporations perspective.)

c. One year has passed and the corporation would like to terminate the swap. What is the close out value of the swap then when the interest rate (with annual compounding) is 5% for all maturities. That is, Libor and forward Libors are all 5% then.