Question: The current 2-year swap rate is 3% and the current 5-year swap rate is 4%. What is the 3-year rate starting in two years? You

  1. The current 2-year swap rate is 3% and the current 5-year swap rate is 4%. What is the 3-year rate starting in two years? You own a 5-year floating rate note paying Libor +25 bps. You believe that 3-year swap rates starting in two years will be 5%. How can you use the forward swap market to profit from your forecast of rates?

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