1. Assume that Caterpillars return on investments is 2.50% per annum for the next four years. Next, suppose that Caterpillar and UBS (a financial institution) enter the following four year interest rate swap: Catepillar pays X% per annum fixed to UBS and receives LIBOR from UBS. All payments are made annually. Catepillars net return after it enters the swap is (LIBOR + 0.75%) per annum. In this case, Catepillar transforms ___________ into __________ and X equals to ________.

1. Floating Rate Investment; Fixed Rate Investment; 1.75%
2. Fixed Rate Investment; Floating Rate Investment; 3.25%
3. Floating Rate Liability; Fixed Rate Liability; 3.25%
4. Fixed Rate Investment; Floating Rate Investment; 3.50%
5. Fixed Rate Investment; Floating Rate Investment; 1.75%