In equity swaps do we ever take into account divident yield? In the examples they dont. But for a bond swap they say you have to take into account both the interest income and the gains/losses. How come?
When we say that we will be swapping the return on the equity portfolio for something else, you can assume they mean total return (capital appreciation plus dividends). But we don’t have to worry about that. Just focus on returns here. It’s the same for bonds too. Don’t think of a single bond. Think of a bond portfolio or an equity portfolio.