Question: PLEASE SHOW ALL STEPS WITHOUT EXCEL OR SPREADSHEETS James and Associates has a line of credit that will permit it to borrow 400,000 in year

PLEASE SHOW ALL STEPS WITHOUT EXCEL OR SPREADSHEETS

PLEASE SHOW ALL STEPS WITHOUT EXCEL OR SPREADSHEETS James and Associates has

James and Associates has a line of credit that will permit it to borrow 400,000 in year one; an additional 200,000 in year two for a total of 600,000; and an additional 400,000 in year three for a total of one million. Under the loan, the interest rate resets at the beginning of each year and is equal to the one-year spot interest rate at the time of reset. James enters into a three year interest rate swap where the notional amount matches the amount available under the line of credit and variable rate matches the rate for the line of credit.

Determine the swap rate.

Time Spot Rate 4.00% 1 2 3 5.00% 5.75% 6.25% 6.50% 4 5

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