Suppose that one year ago a DIVI Corporation agreed to pay the fixed offer rate of 7.16 percent (against three-month LIBOR) to a swap dealer on a three-year, quarterly settlement contract with a notional principal of $52 million. Now, with exactly two years remaining on the agreement, the firm defaults on its remaining obligations. Assume that the average of the other dealers' quoted bid rates is 6.14 percent quoted on a 30/360 day-count basis to match the original transaction.

1. Calculate the default loss to the dealer

2. Calculate the present value of the annuity of the loss to the dealer

3. Suppose in the question above, DIVI Corporation default occurs when the two-year swap fixed offer rate is above 7.16 percent, say at 8.20 percent. Recalculate the present value of the annuity of the loss to the dealer.