You observe the following anticipated floating rate swap payments, each based on a notional $ 100 M. Assume semi-annual compounding.

Floating Payments

t=0 0.5 1 1.5

1 year swap 1M 1.1M

1.5 year swap 1M 1.1M 1.12M

Construct the implied term structure of LIBOR rates. What are the corresponding swap rates?

You plan to sign a 1.5 year Eurodollar loan today (t = 0) for $l,000,000 for 1% over LIBOR. What is the no arbitrage forecast of the interest payments you will make at the end of each 6 month period?

Rates may go up and your floating rate payments increase. Conceptually, how would you hedge this possibility?