Orono Bank and the Portland Manufacturing Corp. enter into the following seven-year swap with a notional amount of $75 million and the following terms:
Every year for the next seven years, Orono Bank agrees to pay Portland Manufacturing 7% per year and receive LIBOR from Portland Manufacturing.
a. What type of swap is this?
b. In the first year payments are to be exchanged, suppose that LIBOR is 4%. What is the amount of the payment that the two parties must make to each other?