Questions about SWAP: multiple question - 3 pts each. 20. [5 pts] Consider a Plain Vanilla Interest Rate Swap agreement that AAA pays a fixed rate of 3% per annum and BBB pays LIBOR rate at the end of year for 3 years on a notional principal of $100m. In return, AAA receives LIBOR rate per annum and BBB receives a fixed rate of 3%. The LIBORs to be applied for cash flows are 2.8%, 3.3%, and 3.5%. Fill in the blanks in the following table of cash flows to BBB. PMT LIBOR Cash flow (Floating) Cash flow (Fixed) Cash flow (Net) 2.8% 3.3% 3.5% 21. Firm AAA can borrow at 6% fixed or in the floating-rate market at LIBOR flat. BBB can borrow at 7.5% fixed or at LIBOR+0.5%. AAA wants to borrow floating and BBB fixed, so that they are interested in entering into an interest-rate swap. What is the swap fixed rate that is equally attractive to both firms? Assume that there is no financial intermediary involved in the swap transaction. A) 7% B16.5% C) 6% D) 5.5% 22. In an interest rate swap, the firm wishing to convert floating rate loan to fixed-rate loan. A) Will pays fix rate and receive floating rate for the term of the swap contract B) Will receive fix rate and pay floating rate for the term of the swap contract C) Such a swap not possible 23. In an interest rate swap between AAA who wants to convert fixed rate loan to floating-rate loan and BBB who wants to convert floating-rate loan to fixed-rate loan: A) AAA Will pays fix rate and receive floating rate for the term of the swap contract B) AAA Will receive floating rate and pay fix rate for the term of the swap contract C) BBB Will pay floating rate and receive fix rate for the term of the swap contract D) BBB Will pay fix rate and receive floating rate for the term of the swap contract 24. In an interest rate swap, BBB wishing to convert floating rate investment to fixed-rate investment. A) Will pays fix and receive floating for the term of the swap contract B) Will receive fix and pay floating rate for the term of the swap contract C) Such a swap not possible