Use the following 2-year swap information to construct a swap hedge in order to answer questions 25 and 26. One-year maturity notes are currently priced at par and pay a coupon rate of 5 percent annually. Two-year maturity notes are currently priced at par and pay a coupon rate of 5.5 percent annually. Answer each of the questions below. The terms of the 2-year swap with notional value of $100 million are: 5.45 percent annual fixed payments tied to the annual discount yield

25. Calculate the end of the year cash flows expected over the two-year life of the swap. Hint: convert par value coupon yields to discount yields and then solve for the implied forward rate. (4 points)

26. Discount each net cash flow by the appropriate spot rates (or theoretical spot rates) to find the present value of the swap. (2 points)