Question III: Hedging with Swaps (10 points) You initiate an interest rate swap with a notional principal of $1 million in which you pay the fixed rate and receive the floating rate The swap is for 3 years, and payments are swapped at the end of each year (so there are 3 net payments, one in 1 year's time, a second in 2 years' time and a third in 3 years' time). The floating rate will reset at the end of the first year. The current 1-year floating rate = 5% and the fixed rate also equals 5%. Compute the duration-approximated change in the value of the swap for a 1 percentage point increase in interest rates. Question III: Hedging with Swaps (10 points) You initiate an interest rate swap with a notional principal of $1 million in which you pay the fixed rate and receive the floating rate The swap is for 3 years, and payments are swapped at the end of each year (so there are 3 net payments, one in 1 year's time, a second in 2 years' time and a third in 3 years' time). The floating rate will reset at the end of the first year. The current 1-year floating rate = 5% and the fixed rate also equals 5%. Compute the duration-approximated change in the value of the swap for a 1 percentage point increase in interest rates