Company A borrows $700,000 from Lender 1. The loan demands interest-only be paid and it is a variable term based on the U.S. 10-year bond plus 2%.

Company B borrows $700,000 from Lender 2. The loan is fixed at 4% and requires payment of interest-only.

10-Year US Bond Interest Rates Over Time

Y1	Y2	Y3	Y4
2.1%	1.6%	1.86%	2.8%

After Year 2, Company A enters into an agreement with Company B, each of them agree to exchange interest cash flows from a notional amount of $360,000, as follows: Company A agrees to pay Company B a fixed rate of 3.5% of the notional amount. These cash flows will happen in Years 3 and 4. Company B agrees to pay Company A a variable rate of the 10-year US Bond rate plus 0.56%, of the notional amount. These cash flows will happen in Years 3 and 4.

What is the net cash flow of Company A, Y1-Y4?

What is the new cash flow of Company B, Y1-Y4?