1. Consider a three-year maturity interest rate swap. Suppose coupon payment is annual.

The fixed-rate payer pays 2% per year, and the floating-rate payer pays LIBOR per year.

Suppose the one-year LIBOR rates over the life of the swap turn out as follows: 1%, 2%, 3%, and 4% at the beginning of year 1, 2, 3, and 4, respectively. Assume the notional principal amount is $100 million. What are the cash flows (the fixed-rate payer's perspective)? (20 points)