A corporation enters into a $X millionnotional principal interest rate swap. The swap calls for the corporation topay a fixed rate and receive a floating rate of LIBOR. The payment will be madeevery 90 days for one year and will be based on the adjustment factor 90/360.The term structure of LIBOR when the swap is initiated is as follows: 90 days,7.2%; 180 days, 7.40%; 270days, 7.60%; 360 days, 7.80%.

a. Determine the fixed rate on the swap.

b. Calculate the first payment on the swap.