16. The Window Wipers Union (a pension sponsor) and the All- Purpose Asset Management Corporation (a money
Question:
16. The Window Wipers Union (a pension sponsor) and the All-
Purpose Asset Management Corporation (a money management firm)
entered into a four-year swap with a notional principal amount of $150 million with the following terms: Every year for the next four years, the Window Wipers Union agrees to pay All-Purpose Asset Management the return realized on the S&P 500 for the year minus 400 bps and receive from All-Purpose Asset Management 9%.
a. What type of swap is this?
b. In the first year when payments are to be exchanged, suppose that the return on the S&P 500 is 7%. What is the amount of the payment that the two parties must make to each other?
Step by Step Answer:
Foundations Of Global Financial Markets And Institutions
ISBN: 9780262039543
5th Edition
Authors: Frank J. Fabozzi, Frank J. Jones, Francesco A. Fabozzi, Steven V. Mann