Consider a three-year swap paying floating receiving fixed with principal of $10 million dollars, paying a fixed rate of 2 percent per year paid yearly, and using the one-year floating spot rate paid yearly. How would one synthetically construct the swaps payoff at time 3 using FRAs and zero-coupon bonds? (Hint: use the answer to question 10.)

Select one:

a. long a $10 million notional FRA maturing at time 3 and long 22,222 zero-coupon bonds maturity at time 3

b. long a $10 million notional FRA maturing at time 3 and long 20,000 zero-coupon bonds maturity at time 3

c. long a $10 million notional FRA maturing at time 3 and short 22,222 zero-coupon bonds maturity at time 3

d. short a $10 million notional FRA maturing at time 3 and short 22,222 zero-coupon bonds maturity at time 3

e. short a $10 million notional FRA maturing at time 3 and short 20,000 zero-coupon bonds maturity at time 3