Consider the following interest rate swap:

• Maturity: 10 years
• Notional amount: $10 million
• Receive 1-year T-bill rate
• Pay fixed 5-year fixed rate
  • 5-year fixed rate is currently 5%

1. Calculate duration of swap for the fixed payment side.

1. If 5-year swap interest rate increases by 1%, how much does the one with the fixed payment loose? Note that swap contract exchanges only interest payments.