ther #side KL Algo Rhythm Ltd (ARL) receives fixed rate income of 6% p.a. paid semi-annually, but has borrowed by issuing floating rate notes with a total face value of $10 million. The floating rate notes mature in exactly 8 years, and pay interest semi-annually at the rate of 6-month Libor plus 1% p.a. The next payment, which was reset today, will be at the rate of 4.5% p.a. ARL's management worry that interest rates may rise, and have approached you, as swap dealer, for a swap that will hedge their exposure. Your indicative pricing schedule shows the mid-rate for 8-year plain vanilla configuration swaps is 5.2% p.a. against Libor flat. (For dealer pays fixed, subtract 10 basis points; for dealer receives fixed, add 10 basis points.) Swap Dealer A B D ARL C D i) Design an on-market plain vanilla swap which will remove ARL's interest rate risk. Indicate what values are required for the letters A to D on the above diagram. ii) In exactly six months, in the exchange between ARL and the swap dealer, who will be the net receiver, and what will be the net dollar amount? O If all navments (API's incomo cwan and floating rato notel coincide what is ARL's locked in spread? Search Hi e Tube N D FULL HD 1080 DODOLBY AUDIO Esc F1 F2 F3 Tab k I Caps Lock ! 1 ((-)) F4 ' F5 OIO F6 F7 F80 F9 A- F10 22 @ 44 #3 $ % & 5 6 19 7 7 Q W E R T Y U 8 A 00 * 00 A S C