Question: Tim borrowed $1000 for two years at a variable interest rate. Tim will make an interest payment to the lender at the end of each

Tim borrowed $1000 for two years at a variable interest rate.

Tim borrowed $1000 for two years at a variable interest rate. Tim will make an interest payment to the lender at the end of each year and also repays $1000 at the end of 2 years. The one-year spot rate is 3% and the 2 -year spot rate is 4%. Tim decided to enter into an interest rate swap to fix the interest rate for 2 years. Determine the level swap rate R. Possible Answers 3.50% 3.65% 3.98% 3.82% 5.01%

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