Suppose that Company ABC will borrow $50 million for 5 years at a rate of SOFR – 0.10%. It would like to transform this loan into a fixed-rate loan. A financial institution is ready to enter into an interest-rate swap with Company ABC. The bid rate on the swap is 2.45% while the ask rate is 2.5%.

a) Design the interest-rate swap that Company ABC must enter with the financial institution. Please use a “box-and-arrow diagram” as in the class notes. 

b) Calculate the net rate that ABC will pay once you combine ABC’s borrowing with the interest-rate swap. 

c) Based on the bid and ask quotes, what should be the swap rate?