1. Suppose that the term structure is described in the following table:

maturity	6-month	12-month	18-month	24-month
yield	2.5%	2.75%	3.0%	3.5%

Assume that 6-month LIBOR rate is 2.5%.

• • a) What is the market fixed rate (annualized, semiannual compounded) for a 2- year fixed-floating swap with semiannual payments?
• • b) XYZ entered into such a swap as the floating-rate payer, with a notional amount of $10 million. Two months later, suppose that the yield curve becomes flat at 2.5% for all maturities and the 6-month LIBOR rate is 2.5%. What is the value of the swap to XYZ?
• • c) If the counterpart defaults now, what is the loss to XYZ?