Question: You enter into a deferred interest rate swap with a notional of $5 million that starts two years from now and matures five years from

You enter into a deferred interest rate swap with a notional of $5 million that starts two years from now and matures five years from now. You receive floating payments based on one-year LIBOR and pay a fixed payment annually with the first payment due in three years. Below, you are given prices of zero coupon bonds based on LIBOR spot rates.

You enter into a deferred interest rate swap with a notional of

What is the annual fixed payment that you will make on the swap?

A. 130,000 B. 189,300 C. 245,700 D. 263,500 E. 432,900

1 3 4 Years to Maturity Zero-coupon Bond Price 2 0.960 5 0.858 0.987 0.935 0.901

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