(Solved): (a) Suppose the risk-free spot rates are as follows Calculate forward interest rates for the second ...

(a) Suppose the risk-free spot rates are as follows Calculate forward interest rates for the second, third, fourth, and fifth years with (i) annual compounding and (ii) continuous compounding, respectively. (8') (b) Companies $\mathrm{A}$ and $\mathrm{B}$ have been offered the following rates per annum on a $\$20$ million five-year loan: Company A requires a floating-rate loan; Company B requires a fixed-rate loan. Design a swap that will net a bank, acting as intermediary, $0.1\%$ per annum and that will appear equally attractive to both companies. (6')