Find the net payment on an equity swap in which party A pays the return on a stock index and party B pays a fixed rate of 6 percent.The notional amount is $10 million.The stock index starts off at 1,000 and is at 1,055.15 at the end of the period.The interest payment is calculated based on 180 days in the period and 360 days in the year.
A)party B pays $851,500
B)parry B pays $48,500
C)party B pays $251,500
D)party A pays $251,500
E)party A pays $851,500

Question

Quizplus · Accepted Answer

Party A pays $251,500. The return on the stock index is (1055.15 - 1000) / 1000 = 5.515%. The payment from party A (stock return) is 5.515% of $10 million = $551,500. The payment from party B (fixed rate) is 6% annualized for 180/360 days of $10 million = $300,000. The net payment is $551,500 - $300,000 = $251,500 paid by party A to party B.

Find the Net Payment on an Equity Swap in Which