You are receiving fixed on a 3-year swap at 1% versus Libor. You pay 50 bps upfront for a one year option to pay fixed at 1% for 2 year.
A. Under what conditions will you exercise the option
B. If you do not exerise the option, what is your annualized return over the three years?
C. At what 2-year rate, one year from now, will you break even on this option?