Problem 1 Two parties enter an interest rate swap paid in arrears on the following terms: a seven year tenor, annual payments, $100 million notional principal and a fixed rate of 6.75% with LIBOR as the floating rate. Assume the following LIBOR spot rates are observed at each of the following dates: One-year LIBOR (rate actually observed) 6.80% 5.75% 8.75% 6.74%. 6.00% 7.00% 6.55% 6.85% From the perspective of the receive-fixed side of the deal, what is the cash flow at Year (date of observation) 0 Received Fixed cash flow 2 4 5 6 7 each payment date of the swap? What role does the swap rate observed at the termination of the swap (year 7) play in the analysis