In a fixed notional equity-for-floating interest-rate swap,the theoretical fair swap spread (the spread over Libor paid by the equity return receiver)is

Question

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In a fixed notional equity-for-floating interest-rate swap, the equity return receiver receives a fixed equity return while paying a floating interest rate based on Libor, so the theoretical fair swap spread is zero. This is because the fixed equity return and floating interest rate based on Libor are designed to be equal in value, with no additional spread required. Therefore, the correct answer is D: zero.

In a Fixed Notional Equity-For-Floating Interest-Rate Swap,the Theoretical Fair Swap