JPMorgan Chase and Facebook agree on an interest rate swap on September 25, 2018 on a notional principal of $500 million. JPMorgan Chase will make annual floating payments according to the 1-year LIBOR plus 50 basis points. Facebook in return will make fixed-rate payments on annual basis. The first cash flow exchange will occur on September 25, 2019. The contract will last for a period of 5 years, e.g., there will be a total of 5 payments for each company. On September 25, 2018, the following LIBOR zero rates and continuously compounded risk-free interest rates are as follows: Maturity LIBOR Zero Rate (%) Forward LIBOR (%) Risk-free Rate (%) 1 year 3.00 ? 2.25 2 years 3.25 ? 2.50 3 years 3.75 ? 2.75 4 years 4.00 ? 3.00 5 years 4.25 ? 3.50 a) If there is no cash settlement at the initiation of the contract, what should be the fair fixed rate that Facebook should pay? b) If Facebook prefers a fixed rate of 5% annually, what cash settlement is needed between the parties on September 25, 2018 in order to have a fair contract? c) On September 25, 2020, the LIBOR zero rates and risk-free interest rates become: Maturity LIBOR Zero Rate (%) Forward LIBOR (%) Risk-free Rate (%) 1 year 3.50 ? 2.75 2 years 3.75 ? 3.00 3 years 4.00 ? 3.25 Compute the value of the swap to Facebook (assuming it pays a 5% fixed rate).