Suppose a financial institution wants to finance its three-year \(\$ 100\) million floatingrate loans by selling three-year floating-rate notes. Suppose the institution can issue a three-year, \(7 \%\), fixed-rate note paying coupons on a semiannual basis and also a threeyear FRN paying LIBOR plus \(100 \mathrm{bp}\).

a. Explain how the institution could create a synthetic three-year floating rate note with a swap.

b. What would the fixed rate on the swap have to be for the synthetic position to be equivalent to the floating-rate note?

c. Define the institution's criterion for selecting the synthetic loan.