Please qualitatively and quantitatively analyze the problem then answer parts A, B and C

1. You enter into a receivers swap receiving 6.50% on 12 milion notional annually for next 5 years. Right after you enter into a swap the interest rates change and are currently as follows [the rates here are simple, not continuous - verify it by checking how the discount factor was computed] Year 2 5.625% .8964 6.16% .8358 6.16% .7739 6.94 .7149 Zero rate 5.00% Discount .9524 Factor Forward 5.00% rates Par coupon 5.00% 6.25% 7.25% 8.00% 8.25% 5.61% 6.12% 6.54% 6.83% a) Did you lose or make money? b) If you want to close-out the position by entering into an offsetting swap, describe what swap would you enter into, and what would be your combined cash-flows over next 5 year from both swaps. Draw a diagram showing the in, and out cash-flows. c) What is the value today of the original swap in the new interest rate environment? (use rates given in the table). Explain your methodology in detail. 1. You enter into a receivers swap receiving 6.50% on 12 milion notional annually for next 5 years. Right after you enter into a swap the interest rates change and are currently as follows [the rates here are simple, not continuous - verify it by checking how the discount factor was computed] Year 2 5.625% .8964 6.16% .8358 6.16% .7739 6.94 .7149 Zero rate 5.00% Discount .9524 Factor Forward 5.00% rates Par coupon 5.00% 6.25% 7.25% 8.00% 8.25% 5.61% 6.12% 6.54% 6.83% a) Did you lose or make money? b) If you want to close-out the position by entering into an offsetting swap, describe what swap would you enter into, and what would be your combined cash-flows over next 5 year from both swaps. Draw a diagram showing the in, and out cash-flows. c) What is the value today of the original swap in the new interest rate environment? (use rates given in the table). Explain your methodology in detail