Consider a pension fund manager who wishes to convert $10 million from notes paying LIBOR to stocks using an equity swap. The equity swap should be structured so that
A) pension fund receives LIBOR and pays an equity return based on a notional principal of $5 million.
B) pension fund pays LIBOR and receives an equity return based on a notional principal of $5 million.
C) pension fund receives LIBOR and pays an equity return based on a notional principal of $10 million.
D) pension fund pays LIBOR and receives an equity return based on a notional principal of $10 million.
E) pension fund pays LIBOR and receives an equity return based on a notional principal of $15 million.

Question

Quizplus · Accepted Answer

The correct structure for the equity swap involves the pension fund paying LIBOR, as it wants to move away from notes paying LIBOR, and receiving an equity return. The notional principal should match the amount being converted, which is $10 million.

Consider a Pension Fund Manager Who Wishes to Convert $10