Firm A enters a $5-$year swap with firm B to pay SOFR in return for a fixed $8\%$ rate on a

notional principal of $$10$ million. Two years later, the market rate on $3-$year swaps is SFOR

for $7\%$; at this time, firm B declares bankruptcy and defaults on its swap obligation.

a$.$ How is firm A harmed by the default?

b$.$ What is the market value of the loss incurred by $A$ as a result of the default?

c$.$ Suppose instead that A had gone bankrupt. How much would B$\text{'}$s loss be in this case?