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If expected one-year rates over the next five years are: 3%, 4%, 5%, 4% and 3% and the notional principle is $1million, what fixed rate
If expected one-year rates over the next five years are: 3%, 4%, 5%, 4% and 3% and the notional principle is $1million, what fixed rate would you swap for floating rates? Prove that youre indifferent after 2 years between the fixed and floating positions if interest rates dont change. Show who wins and how much after five years if floating rates rise after two years by 1% (so rates are 3%, 4%, 6%, 5% and 4%).
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