Compute the fixed rate in two year amortizing interest rate

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Reference no: EM132039819

I need to solve this problem for homework and I'm having a hard time. This problem is from the book "Derivatives Markets (3rd Edition) (Pearson Series in Finance)" written by Robert L. McDonald. The problem goes as follow (the answer is provided at the end but I need to know how to get to that answer):

Suppose the 1-year effective annual interest rate is 4.5% and the 2-year effective rate is 6.3%.

Compute the fixed rate in a 2-year amortizing interest rate swap based on $200,000 of notional principal in the first year and $140,000 in the second year.

Reference no: EM132039819

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