Problem
On December 31, 2020, SSNIT and SIC (non-life) entered into a six year swap arrangement with first payment to be exchanged on December 31st, 2022 and each December 31st thereafter under the following terms:
a) SIC will pay SSNIT an amount equals to 5% per annum on a notional principal of US$50 million. (FIXED Amount)
b) SSNIT will pay SIC an amount equals to one-year LIBOR +1.25% per annum on a notional amount of US$50 million. (Flexible Amount).
c) On 31st December 2022, one-year LIBOR is projected to be 2.75%.
What will be the payment flows for the first year, December 31st?