Question 3 You are given the following spot rates: Mark Years to Maturity Spot Rate 3 4.00% 4.50% 5.25% You enter into a three-year amortizing interest rate swap to pay a fixed rate and receive a floating rate based on future 1-year LIBOR rates. The notional amount is 100,000 for year 1,80,000 for year 2, and 60,000 for year 3. If the swap has annual payments, what is the fixed rate you should pay? 0.040 0.045 0.050 0 0.055 E 0.060 M The current spot rates are 5% for a one-year maturity and 6% for a two-year maturity. You borrow $1,000 to be repaid in two years. You make variable interest payments at the end of each year based on the one-year floating rate. What is the swap rate, R to obtain a fixed interest rate on this debt? 5.2% 5.4% 5.6% D 5.8% E 6.0%