Exercise $19-3$ Computing the value of an interest rate swap $($LO $19-1,$ LO $19-2)$

On January $1,20$X$1,$ Novak, Inc., enters into an interest rate swap and agrees to receive fixed and pay variable on a notional amount of $\backslash (\backslash$$ $5,000,000\backslash ).$ The contract calls for cash settlement of the net interest amount at December $31$ of each year. The yield curve is flat, and the agreement is to last until December $31,20$X$9.$ Both the fixed annual rate and the variable annual rate at January $1,20$X$1,$ are $7\mathrm{.}00\backslash \%.$ The variable interest rate is reset at the end of each year and becomes effective for the next year. On December $31,20$X$1,$ the variable rate is reset to $\backslash (8\mathrm{.}00\backslash \%\backslash )$ per year, and on December $\backslash (31,20\backslash$times $2\backslash ),$ the variable rate is reset to $\backslash (5\mathrm{.}00\backslash \%\backslash ).$

Required:

$1.$ Compute the fair value of the swap agreement at December $\backslash (31,20\backslash$times $1\backslash ).$ Be sure to indicate whether it is an asset or a liability.

$2.$ Compute the fair value of the swap agreement at December $31,20$X$2.$ Be sure to indicate whether it is an asset or a liability.

$($For all requirements, round "PVOA factor" to $5$ decimal places and final answers to the nearest whole dollar.$)$