Help with Schweser Qbank question on Equity Swap question, receive, return, equity, LIBOR

hanvinh

Question ID#: 95544
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% and the index is at 840. Below are the index level and LIBOR at each of the four settlement dates on the swap.
Q1: LIBOR: 3.2 ; Index 881
Q2 LIBOR 3.0%; Index 850
Q3 LIBOR 3.4%; Index 892.5
Q4 LIBOR 3.9%; Index 900

At the final settlement date, the equity-return payer will:
A)
receive $16,903.
B)
receive $97.
C)
pay $16,903.
Your answer: C was incorrect. The correct answer was B) receive $97.
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

mp3bu

Q1: LIBOR: 3.2 ; Index 881
Q2 LIBOR 3.0%; Index 850
Q3 LIBOR 3.4%; Index 892.5
Q4 LIBOR 3.9%; Index 900
At the final settlement date, the equity-return payer will:
In equity swaps the sttlements take place at the end of every quarter. At the end of Q3 you would use Q3&Q2 value.
In this question they have asked what woud the equity-return payer at the final settlement date Q4 .. Hence we use Q3 & Q4 values