Reading 74: Swap Markets and Contracts - LOS b, (Part 5) ～ percent, 840, equity, style, return

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1.Consider a 1-year quarterly-pay $1,000,000 equity swap based on 90-day London Interbank Offered Rate (LIBOR) and an index return. Current LIBOR is 3.0 percent and the index is at 840. Below are the index level and LIBOR at each of the four settlement dates on the swap.

	Q1	Q2	Q3	Q4
LIBOR	3.2%	3.0%	3.4%	3.9%
Index	881	850	892.5	900

At the final settlement date, the equity-return payer will:

A)   pay $97.

B)   pay $16,903.

C)   receive $97.

D)   receive $16,903.

2.Consider a 1-year quarterly-pay $1,000,000 equity swap based on a fixed rate and an index return. The current fixed rate is 3.0 percent and the index is at 840. Below are the index level at each of the four settlement dates on the swap.

	Q1	Q2	Q3	Q4
Index	881	850	892.5	900

At the first settlement date, the equity-return payer in the swap will pay:

A)   $4,638.

B)   $56,310.

C)   $40,810.

D)   $41,310.

3.Consider a 1-year quarterly-pay $1,000,000 equity swap based on 90-day London Interbank Offered Rate (LIBOR) and an index return. Current LIBOR is 3.0 percent and the index is at 840. Below are the index level and LIBOR at each of the four settlement dates on the swap.

	Q1	Q2	Q3	Q4
LIBOR	3.2%	3.0%	3.4%	3.9%
Index	881	850	892.5	900

At the second settlement date, the equity-return payer in the swap will:

A)   receive $43,187.

B)   receive $42,687.

C)   receive $21,187.

D)   pay $21,187.

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cfaedu

答案和详解如下：

1.Consider a 1-year quarterly-pay $1,000,000 equity swap based on 90-day London Interbank Offered Rate (LIBOR) and an index return. Current LIBOR is 3.0 percent and the index is at 840. Below are the index level and LIBOR at each of the four settlement dates on the swap.

	Q1	Q2	Q3	Q4
LIBOR	3.2%	3.0%	3.4%	3.9%
Index	881	850	892.5	900

At the final settlement date, the equity-return payer will:

A)   pay $97.

B)   pay $16,903.

C)   receive $97.

D)   receive $16,903.

The correct answer was C)

The equity return payer will pay the equity return and receive the floating rate return which is based on the Q3 realized LIBOR.

[0.034 × (90/360) - (900/892.5 - 1)] × 1,000,000 = $96.64

2.Consider a 1-year quarterly-pay $1,000,000 equity swap based on a fixed rate and an index return. The current fixed rate is 3.0 percent and the index is at 840. Below are the index level at each of the four settlement dates on the swap.

	Q1	Q2	Q3	Q4
Index	881	850	892.5	900

At the first settlement date, the equity-return payer in the swap will pay:

A)   $4,638.

B)   $56,310.

C)   $40,810.

D)   $41,310.

The correct answer was D)

The equity-return payer will pay the index return minus the fixed rate at the initiation of the swap.

[(881/840 – 1) - 0.0075] × 1,000,000 = $41,309.52

3.Consider a 1-year quarterly-pay $1,000,000 equity swap based on 90-day London Interbank Offered Rate (LIBOR) and an index return. Current LIBOR is 3.0 percent and the index is at 840. Below are the index level and LIBOR at each of the four settlement dates on the swap.

	Q1	Q2	Q3	Q4
LIBOR	3.2%	3.0%	3.4%	3.9%
Index	881	850	892.5	900

At the second settlement date, the equity-return payer in the swap will:

A)   receive $43,187.

B)   receive $42,687.

C)   receive $21,187.

D)   pay $21,187.

The correct answer was A)

The equity-return payer will receive the floating rate from the end of the previous period, 3.2%, plus the negative return on the index over the second quarter.

[ 0.032/4 - (850/881 – 1)] × 1,000,000 = $43,187.29