• Suppose that you have $20,000 in savings that you repeatedly invest in 6-month bank certificate of deposits (CDs). After each 6-month period you spend the earned interest. You’ve noticed that the quoted rate on these CDs is always 1% less than the 6-month LIBOR rate. You don’t like the uncertainty of the changing rate so you decide to enter a 3-year interest rate swap contract to keep your interest payments steady.
• [3] What side of the swap contract should you take? Explain your reasoning.
• [3]  If the swap rate is 3.8%, what is the effective interest rate of your modified investment?
• [4]  Your final swap payment will occur 3 years from today, 3/24/2023. Describe the relevant LIBOR rate for this payment (i.e. the x-month LIBOR rate from date y).
• Suppose this LIBOR rate ends up being 3.5%. Calculate:
• [3]  Your net swap payment
• [2]  Your net interest after combining this with the interest from your CD.