A European firm (EF) borrowed 10,000,000 from a bank a few months ago at a cost of LIBOR + 1.5%. The firm wishes to effectively transform this borrowing into fixed-rate, -denominated debt. The firm goes to CCB (a swap dealer) and inquires about what it can do to get the desired result. The bank provides EF with the following quotes. You are the consultant to EF.

CCB quotes

Euros 3.65% bid for and 3.80% ask against 6-month euro LIBOR (2-yr swap)

You inform EF that a swap can transform their debt. The swap will accomplish the firms fixed-rate objective. You provide them with the following cash flow worksheet based on some hypothetical LIBOR rates over the next two years. Every number you write down has to have the appropriate currency prefix and has to have parentheses around the number if it is a cash outflow. Also, please note that the all interest rates are in yearly form whereas the cash flows occur every six months!

SWAP

LIBOR EFs receipt EFs payment

Time

0 (initiation) _________ _________

0.5 2.85% _________ _________

1.0 3.10% _________ _________

1.5 3.00% _________ _________

2.0 2.45% _________ _________

2.0 (maturity) _________ _________ show math steps please! :)