An asset manager wishes to temporarily reduce her exposure to fixed income securities and increase her exposure to small cap stocks. She enters into an equity index swap paying the swap dealer 5.5% on a notional principal of $50,000,000 and in return receive the returns to the small-cap index. Cash flows under the swap are made every 6-months and payments are calculated using the 30/360 day count convention. The swap was initiated when the small-cap index was 2369 and after 6 months the small cap index was 2569. Calculate the cash flow for the asset manager after the expiry of the first six months… A)A payment of $0.571m B) A receipt of $0.571m C) A payment of $2.846m D) A receipt of $2.846m
D!
went with D but could be WAY off here I did 5.5% * 50M then took what I got there * (rtn of small cap index) = 232M , then got lost
The asset manager pays $50m x 0.055 x 0.5 = $1,375,000 on the fixed side and receiving 200/2369 x $50,000,000 = $4,221,193 on the small cap index, a net inflow of $2,846,190
Return on stock: (2569-2369)/2369 = 8.44% Fixed rate: 5.5%/2 = 2.75% for 6months (8.44%-2.75%)*50000000 = 2.846million
strangedays Wrote: ------------------------------------------------------- > The asset manager pays $50m x 0.055 x 0.5 = > $1,375,000 on the fixed side and receiving > 200/2369 x $50,000,000 = $4,221,193 on the small > cap index, a net inflow of $2,846,190 is the .5 coming from 6 months/12 months = half a year???
daj224 Wrote: ------------------------------------------------------- > strangedays Wrote: > -------------------------------------------------- > ----- > > The asset manager pays $50m x 0.055 x 0.5 = > > $1,375,000 on the fixed side and receiving > > 200/2369 x $50,000,000 = $4,221,193 on the > small > > cap index, a net inflow of $2,846,190 > > > is the .5 coming from 6 months/12 months = half a > year??? exactly
> > > > is the .5 coming from 6 months/12 months = half > a > > year??? > > exactly THANKS : )
Yay!!! I am FINALLY answering some right. Got D too.