An interest rate swap has three years of remaining life. Payments are exchanged annually. Interest at 4% is paid and 12-month LIBOR is received. An exchange of payments has just taken place. The one-year, two-year, and three-year LIBOR/swap zero rates are 2.5%, 3.5% and 4.5%. All rates are annually compounded.

Calculate the swap rate?

a.

1.50 %

b.

8.25 %

c.

2.17 %

d.

None of the other answers provided is correct

e.

88.76 %