On January 1, 2018, Trece Company borrowed P5 million from a bank at a variable rate of interest for

4 years. Interest will be paid annually to the bank on December 31 and the principal is due on December 31, 2021.

Under the agreement, the market rate of interest every January 1 resets the variable rate for that period and the

amount of interest to be paid on December 31.

In conjunction with the loan, Trece Company entered into a "receive variable, pay fixed" interest rate swap

agreement with another bank speculator. The interest rate swap agreement was designated as cash flow hedge. The

market rates of interest are:

January 1, 2018 10%

January 1, 2019 14%

January 1, 2020 12%

January 1, 2021 11%

The PV of an ordinary annuity of 1 is 2.32 at 14% for three periods, 1.69 at 12% for two periods, and 0.90 at 11%

for one period.

1. What is the "notional" of the interest rate swap agreement?

2. What is the derivative asset or liability on December 31, 2018?

3. What is the derivative asset or liability on December 31, 2019?

4. What is the derivative asset or liability on December 31, 2020?