When pricing an interest-rate swap, the floating-rate payments are calculated using ________ rates, and their present values are calculated using ___________ rates.

a.

Spot; Risk-Adjusted

b.

Forward; Spot

c.

Risk-Adjusted; Spot

d.

Spot; Forward

Analyze a two-year swap agreement to exchange LIBOR for fixed-rate payments on a $100 million notional principal. The first payment will be made in one year; the second in two years. You have the following information on LIBOR rates: One-year spot rate is 4% per year. Forward rate in the second year is 6% per year.

Find the floating-rate payments to be made in the first year.

	a.	$4 million
	b.	$5 million
	c.	$6 million
	d.	$7 million