a) Explain how you can replicate the cash flows coming from a 3-year FRN that pays semi-annual coupons of LIBOR + 4.5% by rolling 6-month loans made to borrowers who also pay the spread of4.5% above LIBOR on their loans.

b) Part a) suggests that instead of buying a FRN, another ''equivalent'' alternative for lenders would be rolling 6-month loans. Are these alternatives really ''equivalent''? What is the benefit of buying a FRN instead of rolling 6-month loans for lenders?

c) Similarly, for borrowers, instead of selling a FRN, they can keep rolling their 6-month loans over time. What is the benefit of selling a FRN over rolling 6-month loans for borrowers?