Session 17: Derivative Investments: Options, Swaps, and Interest Rate and Credit Derivatives Reading 63: Swap Markets and Contracts
LOS e: Calculate and interpret the fixed rate, if applicable, on an equity swap and the market values of the different types of equity swaps during their lives.
Consider a fixed-rate semiannual-pay equity swap where the equity payments are the total return on a $1 million portfolio and the following information:
- 180-day LIBOR is 4.2%
- 360-day LIBOR is 4.5%
- Div. yield on the portfolio = 1.2%
What is the fixed rate on the swap?
= 0.022239 × 2 = 4.4477%
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