Luke enters into a three-year interest rate swap to receive a fixed rate and pay a variable rate based on future 1-year LIBOR rates. The settlement occurs at the end of every year. The notional amount is 1,000 for year 1, 800 for year 2, and 600 for year 3. t st 1 4% 2 5% 3 6% 4 7% 5 8% Calculate the swap rate.

a)2.8%

b)3.5%

c)4.2%

d)4.9%

e)5.6%

Luke enters into a three-year interest rate swap to receive a fixed rate and pay a variable rate based on future 1-year LIBOR rates. The settlement occurs at the end of every year. The notional amount is 1,000 for year 1, 800 for year 2, and 600 for year 3. St 1 4% 2 5% 3 6% 4 7% 5 8% Calculate the swap rate