Question
A dealer arranges an equity swap with a mutual fund. The notional principal on the swap is $50 million and the swap calls for quarterly
A dealer arranges an equity swap with a mutual fund. The notional principal on the swap is $50 million and the swap calls for quarterly settlement. The mutual fund agrees to pay the dealer the return on the S&P 400 Midcap index, which is currently at 1038.4. The dealer pays a fixed rate of 5.50% to the mutual fund with payments made on the basis of 91 days in the period and a 365-day year.
At the first settlement date, the S&P 400 Midcap index is at 1,052.5. There were 91 day in the quarter, and the net swap payment is based on a 365-day year convention.
Which of the following will most likely take place on the first swap settlement date? To settle the swap (to the nearest dollar), the:
A | dealer pays $6,687. |
B | dealer pays $1,364,546. |
C | mutual fund pays $6,687. |
D | mutual fund pays $1,364,546. |
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