# Dervatives - can you please explain?

Consider a 1-year quarterly-pay \$1,000,000 equity swap based on 90-day London Interbank Offered Rate (LIBOR) and an index return. Current LIBOR is 3.0% and the index is at 840. Below are the index level and LIBOR at each of the four settlement dates on the swap. LIBOR Index Q1 3.2% 881 Q2 3.0% 850 Q3 3.4% 892.5 Q4 3.9% 900 At the final settlement date, the equity-return payer will: A) receive \$97. B) pay \$97. C) pay \$16,903. D) receive \$16,903. Your answer was incorrect. The correct answer was A) receive \$97. The equity return payer will pay the equity return and receive the floating rate return which is based on the Q3 realized LIBOR. [0.034 × (90/360) − (900/892.5 − 1)] × 1,000,000 = \$96.64

Consider a 1-year quarterly-pay \$1,000,000 equity swap based on 90-day London Interbank Offered Rate (LIBOR) and an index return. Current LIBOR is 3.0% and the index is at 840. Below are the index level and LIBOR at each of the four settlement dates on the swap. LIBOR Index Q1 3.2% 881 Q2 3.0% 850 Q3 3.4% 892.5 Q4 3.9% 900 Company A (I made up company A btw) doesn’t want equity returns anymore would rather have LIBOR rate returns so I drew a diagram Company A Pays Equity ---------------------------> Company B

got it now. thanx a lot JP.

no prob, just remember to draw out the diagram makes it like so much easier to visualize