Swap payment

A dealer arranges an equity swap with a mutual fund. The notional principal on the swapp is $50 million and quarterly payments have been scheduled. The mutual fund agrees to pay the dealer the return on the S&P 400 Midcap Index, which is currently at 1,038.4. Three months later it is 1,052.5. The dealer pays a fixed rate of 5.50% to the mutual fund with payments made on the basis of 91 days in the period and 365 days in the year. What is the net payment and who makes it? A. Dealer pays $6,687 B. Dealer pays $1,364,546 C. Mutual fund pays $6,687 D. Mutual fund pays $1,364,546 Answer and explanation please? thanks

Check with others, but I don’t think swaps are part of 2008 exam.

C Dealer pays 50M*(1052.5/1038.4-1) = 678,929 MF pays 50M*.055*91/365 = 685,616

Dreary Wrote: ------------------------------------------------------- > Check with others, but I don’t think swaps are > part of 2008 exam. They are in the SCHW 2008 notes…

look at page 364 of Vol 5

But its @ Reading 74 of Vol 6

ouch!

“The dealer pays a fixed rate of 5.50% to the mutual fund”. It’s A.