Fabin and Capton enter into a two year interest rate swap. Under the swap, Fabin will pay a fixed rate on a notional amount of 500,000 while receiving payments based on a floating interest rates. The swap rate is 3.5 % with annual settelement periods. The floating rate is LIBOR plus 25 basis points. The LIBOR rate for the first year is 3.1 % and for the second year it turns out to be 3.7 %.

1. Determine the net swap payment that will occur between Fabin and Capton at the end of the first year.

2. Determine the net swap payment that will occur between Fabin and Capton at the end of the second year.