Suppose the current term structure of interest rates, assuming annual compounding, is as follows:

s1s_1

s1

s2s_2

s2

s3s_3

s3

s4s_4

s4

s5s_5

s5

s6s_6

s6

7.0%7.3%7.7%8.1%8.4%8.8%

What is the discount rate d(0,4)d(0,4)

d(0,4)? (Recall that interest rates are always quoted on an annual basis unless

stated otherwise.)

Suppose a 6-year swap with a notional principal of $10 million is being

configured. What is the fixed rate of interest that will make the value

of the swap equal to zero. (You should use the term structure of interest rates from Question 1.)