Question: Refer to Practice 19-1 and complete the following: 1. Compute the total amount (including all swap-related cash flows) that the company will pay in interest

Refer to Practice 19-1 and complete the following:

1. Compute the total amount (including all swap-related cash flows) that the company will pay in interest in Year 2, assuming that the prime lending rate on January 1 of Year 2 is (a) 7%, (b) 15%, and (c) 10%. Comment on your computations.

2. When the speculator entered into the interest rate swap agreement on January 1 of Year 1, which direction did the speculator think that interest rates were going to go—up or down? Explain.

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