Exam 22: Equity Swaps

Which of the following is not true of hedged cross-currency equity swaps?

Executive compensation often comprises stock options.These options have vesting periods,and may not be exercised for a while.Which of the following actions might an executive take to help her mitigate the risk of her stock option grants?

An equity swap may be used to time the markets.Given a current position in a $1,000 portfolio of 80:20 (equity:bonds),suppose you expect that bonds will perform relatively better than stocks and want to change the portfolio composition to 20:80,what swap would you enter into?

You enter into an equity swap where you receive the US dollar return on the Nikkei index at prevailing exchange rates,and pay dollar Libor.Which of the following statements is most valid?

A fund that is all invested in U.S.equities seeks exposure to foreign equity markets.Which of the following is the most appropriate approach for the fund to take? (MSCI World is an index that tracks the performance of equity markets in 24 countries. )

Consider a fixed notional equity-for-floating rate swap.The fair price of the swap is to exchange equity for Libor plus a spread $x$ ,where the spread $x$ is

In a fixed notional equity-for-floating interest-rate swap,the theoretical fair swap spread (the spread over Libor paid by the equity return receiver)is

You enter into a two-year variable notional swap of equity returns for 6-month Libor with semi-annual payments on both legs.The initial swap notional is $100 million,the Libor rate at inception of the swap is 7.2%,and the realized raw equity returns during the first 6-month period is 6.3%.The first 6-month period has 183 days.The notional principal of the swap entering the second 6-month period is

An equity swap favors the party that receives the equity return and pays Libor because

Consider an equity swap of the equity index return versus six-month Libor.The current equity index is at 1100.The six-month Libor rate is currently 11.50%.There are 184 days in the given six month period.What should be the level of the index in 6 months for the net payment in six months to be zero?

Which of the following factors does affect the valuation of a fixed notional equity swap that pays the equity return in exchange for a fixed interest rate payment?

A variable notional equity swap differs from a fixed notional equity swap in that

Executive compensation often comprises stock options.These options have vesting periods,and may not be exercised for a while.Which of the following actions could help executives mitigate the risk of their stock option grants?

An equity swap is an agreement to

Consider a five-year equity swap that pays the equity return in return for six-month Libor.Which of the following statements is most valid? Assume you are at the inception of the swap.

It is March 15,and the next payment date in an equity swap is September 15.You contract through an equity swap ($100,000 notional)to receive Libor and pay the equity return.Libor payments use the money market convention,i.e. ,ACT/360.Suppose the equity index goes from 1011 to 1088 over this period.The six-month Libor on March 15 is 3%.What is your net cashflow on September 15?

Consider a $100 fixed notional,equity for Libor swap,where the stock price at inception was $35.Two years later,on the stock price was $40.The swap is based on semi-annual payments on both legs,with an ACT/360 convention for the Libor leg.Assume that the number of days in the next period is 183,and the six-month Libor rate was 10%.Of these 92 have elapsed.The 91-day Libor rate for the remaining period is 9% and the stock price is $41.What is the value of the swap from the point of view of the receiver of equity return?

Consider a 5-year $100 fixed notional equity-for-Libor swap,where the stock price at inception was $35.The swap is based on semi-annual payments on both legs,with an Actual/360 convention for the Libor leg.Two years after inception,on the fourth reset date,the stock price is $40.Assume that the number of days in the next period is 183,and the six-month Libor rate on this reset date is 10%.What is the value of the swap from the point of view of the receiver of equity return?

Consider an equity-for-Libor swap.The swap favors the party that receives the equity return and pays Libor because

Consider a $100 notional equity-for-equity swap on two stocks where the price of the stocks at inception was $40 and $50,respectively.At the present time,sixty-one days after inception,the two stock prices are $39 and $51,respectively.If you pay the return on the first stock and receive the return on the second stock,what is your valuation of the equity swap after sixty-one days? Assume that the Libor interest rate on an ACT/360 basis from now till the next settlement date is 10% for the remaining 122 days.