Consider a $4-$year $5\%$ bond swap in euros for $1$ million notional value. In other

words, there will be three interest payments followed by a final payment of interest plus

principal, all made in euros. Assume that the appropriate discount rate is $9\%$ and the spot rate

is $1\mathrm{.}05$ USD$/$EUR when answering the following questions related to possible swap

contracts.

a$.$ What is the net present value of the payments described above $($in euros$)?$

b$.$ If you want to offset the euro payments with a single USD payment at the end of year

two, what is the appropriate amount? $($This could be described as a bullet repayment.$)$

c$.$ Alternatively, if you want to offset the euro payments with four equal USD payments at

the end of each year, what is the appropriate amount? $($This could be described as an annuity

repayment.$)$

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