1. Given the following yield curve:

Maturity (years)	LIBOR zero rate per annum (continuously compounded)
1	7%
2	8%
3	9%
4	10%
5	11%

a) If you are asked to quote a 5-year at-the-market interest rate swap (IRS) with a notional principal of $10 million, what should be the mid fixed swap rate of the IRS (ignoring bid/ask spread) so that the swap has zero value in the beginning? The floating rate is LIBOR and interest exchange is made once a year.

b) One year later, the original 5-year interest rate swap as in Part a) has a maturity of four years left. Assuming the above zero rates remain unchanged, what is the value of the $10 million IRS (with four remaining payments to exchange) from the fixed rate payers point of view? The fixed rate is equal to the rate you have calculated in Part a)