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Calculate the present value of the expected payments

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(a) Your company has a five year floating rate bank loan at current rates. If the expected floating rates are 1% for the first three years and then 2% for year 4 and 3% for year 5, what is a fair fixed rate in an interest rate swap? Calculate based on the present value of the expected payments using continuous compounding and semi-annual payments.

(b) Do you have high or low counterparty risk in this swap? Explain.

Reference no: EM132654745

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