I. Firm A wants to borrow $5,000,000 floating for 3 years; Firm B wants to borrow $5,000,000 fixed for 3 years. Their external borrowing opportunities are shown below: Fixed-Rate Borrowing Cost Floating-Rate Borrowing Cost Firm A 6.00% LIBOR Firm B 6.80% LIBOR+0.30% Swap Bank proposes the following interest only swap: Firm A will pay the swap bank annual payments on $5,000,000 with the coupon rate of LIBOR; in exchange, Swap Bank will pay to Firm A the interest payments on $5,000,000 at a fixed rate of 6.30%. Firm B will pay the swap bank interest payments on $5,000,000 at a fixed rate of 6.50% and the swap bank will pay Firm B annual payments on $5,000,000 with the coupon rate of LIBOR+0.14%. 1. Compute the value of this swap to Swap Bank? (20 points) 2. Compute the value of this swap to Firm A? (20 points) 3. Compute the value of this swap to Firm B? (20 points) II. Based on the article provided to you in class, compute the optimal portfolio weights of two national security markets (2) compute the SHP ratio for each individual national market as well as your optimal international portfolio. Your international portfolio includes two national security markets: U.S. Money Market and Pacific Stock Market. (1) Compute optimal portfolio weights for each national market (20 points). (2) Compute SHP ratio for each national market (10 points). (3) Compute SHP ratio for the optimal international portfolio (10 points).