Question: A person borrowed $10000 for four years at a variable interest rate. They will make an interest payment to the lender at the end of

A person borrowed $10000 for four years at a variable interest rate. They will make an interest payment to the lender at the end of each year and also repay $10000 at the end of 4 years. The one-year spot rate is 4.0% the two-year spot rate is 4.5%, the three-year spot rate is 6.0%, and the four-year spot rate is 7.0%

They decide to enter into an interest rate swap to fix the interest rate for 4 years. Determine the level swap rate R.

6.81%

7.66%

4.91%

5.97%

8.27%

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