Exam 22: Equity Swaps

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.)

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 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.

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?