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explain in detail, please Total Return Swaps A total return swap is a swap, in which one party pays the realized total return (dividends plus
explain in detail, please
Total Return Swaps A total return swap is a swap, in which one party pays the realized total return (dividends plus capital gains) on a reference asset and the other party pays a floating return such as LIBOR . The two parties exchange only the difference between these rates The party paying the return on the reference asset is the total return payer Example: Total Return Swap ABC Asset Management want to sell $1 billion of investment in S&P index An alternative is to swap the total stock return into a floating short-term rate Table Illustration of cash flows on a total return swap with annual settlement for 3 years. Net Payment to Year S&P Capital Gain S&P Dividend Floating Rate Total Return Payer 1 5% 1.5% 7.2% 0.7% 2 -12% 1.5% 7.5% 18.0% 3 22% 1.5% 7.0% -16.5% Step by Step Solution
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