You are the controller for Company, a medium size manufacturer.To expand its operations, Company borrowed $1,000,000 on an 8% note payable.The note pays interest annually, and the note's principal is due in 10 years. Company believes that interest rates prevailing over the next 10 years will be lower than 8%.So the Company decides to enter into a 10 year hedging contract with a third-party investor.Under the terms of the agreement, at each annual interest date, Company will receive 8% interest on the underlying amount ($1,000,000) from the investor and in return pay the investor LIBOR + 0.25% interest on the underlying amount ($1,000,000).The diagram below illustrates the agreement.