Question: Question 1: (Interest Rate Swap) (15 points) Consider a party that we denote as A. The current assets and liabilities of A are as follows.

Question 1: (Interest Rate Swap) (15 points) Consider a party that

Question 1: (Interest Rate Swap) (15 points) Consider a party that we denote as A. The current assets and liabilities of A are as follows. A receives 2% fixed interest on a 5 yr loan of size $250,000. A pays Libor +6% interest on a 5 yr loan of size $250,000. a) (5 points) Find the current net liability of A. b) Explain with a simple diagram with arrows how A can transform the net liability you found in part a to a net fixed 7% liability by entering into a swap aggrement with a party B

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