Below is the question. I have the answer, I follow what they do in the solution, but I don’t understand how they don’t account for the return on the equity portfolio.

Doesn’t the dividend yield make a difference in the pricing?

Thank you

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Consider a fixed-rate semiannual-pay equity swap where the equity payments are the total return on a $1 million portfolio and the following information:

- 180-day LIBOR is 4.2%
- 360-day LIBOR is 4.5%
- Div. yield on the portfolio = 1.2%

What is the fixed rate on the swap?

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Answer:

(1-(1/1.045))/[(1-(1/(1+,042(180/360))+(1-(1/(1+,045(360/360))]