II (Interest Rate Swap) Consider an interest rate swap (IRS) with payment dates every 6 months, starting at T0 = 0, with maturity 2 years, fixed rate S = 3% and principal amount N = 100. Suppose that at time t = 0, we observe the following bond prices (in this exercise, all bond prices refer to a principal amount N = 100): P0(0.5) = 99.50 P0(1) = 98.02 P0(2, 0.02, 2) = 100.02, P0(2, 0.03, 2) = 103.87. 1. Compute the zero-rates R0(0.5), R0(1), R0(1.5) and R0(2) implied by the bond prices. 2. Compute the swap rate S(0.5, 1, 1.5, 2). 3. By relying on your answer to question 2, compute the arbitrage-free price of the IRS with rate S = 3% considered in the exercise.