In the CFAI EOC questions, readin 29, question 8, they have the following swaps:
receive return on us large-cap index in $2M
Pay Libor on $2M’
Pay return on international stock inded on $42M
receive libor on $42M
receive return on US gov bon index on $22M
pay libor on $22M
receive return on us corp bond index on $18M
pay libor on $18M
They net it all out so that there is no libor payments or receipts. Is this realistic? How can you tie all these exposures to Libor exactly? Shouldn’t most of these be Libor + X%, or a multiple of Libor?
Or do they just just tie it to libor and then charge an amount upfront to do the swap?
I dont understand how you can do this at all.