7. (6 marks) AEF Inc. has a 7-year floating-rate loan at an annual rate of LIBOR -0.25%. The most recent strong economic data has led to the market consensus that interest rates are on the upward trend. Sensing an upcoming challenge of increasing interest expenses, AEF had decided to do an interest rate swap with the market maker whose swap quotes are those in Table 5.5 on p.110. (1) Explain how AEF can use the quotes in Table 5.5 to lock in its interest expenses and illustrate your answer with a diagram in which you need to indicate AEF's initial liability situation (that is, paying or earning a fixed-rate or a floating-rate), which rate it receives and which rate it pays in a possible interest rate swap. (2) As a result of this swap, what is the net rate AEF will pay from now on. (3) Under what circumstance, that is, how much LIBOR should be, will AEF gain by entering into the swap? 7. (6 marks) AEF Inc. has a 7-year floating-rate loan at an annual rate of LIBOR -0.25%. The most recent strong economic data has led to the market consensus that interest rates are on the upward trend. Sensing an upcoming challenge of increasing interest expenses, AEF had decided to do an interest rate swap with the market maker whose swap quotes are those in Table 5.5 on p.110. (1) Explain how AEF can use the quotes in Table 5.5 to lock in its interest expenses and illustrate your answer with a diagram in which you need to indicate AEF's initial liability situation (that is, paying or earning a fixed-rate or a floating-rate), which rate it receives and which rate it pays in a possible interest rate swap. (2) As a result of this swap, what is the net rate AEF will pay from now on. (3) Under what circumstance, that is, how much LIBOR should be, will AEF gain by entering into the swap