SWAP question on CFAI mock

CFA Level II
#1

Monk states, the value of this equity swap is the amount of money that is exchanged on the annual payment date. question: Monks statement regarding the value of the equity swap correct? A. Yes. B. No, because the value of the swap is the sum of the annual payments. C. No, because the value of the swap is the amount of money that is exchanged on the final payment date. D. No because the value of the swap is determined by the combination of stock and bond transactions that replicate the cash flows on the swap.

#2

how come no one tried this question?

#3

its either B or D… watch it be A.

#4

I would go with E) No, because the value of the swap is the sum of the PV of the payments (those payments are not necessarly annual) ----- A) would be true if you look at the expiration of the swap if the the annual payment is the maturity (last payment of the swap). At expiration, the value of the swap is the sum of the last payment.

#5

that’s right has to be PV

#6

No one thinks that the value of a SWAP is the principle amount? the price of a SWAP is the fixed rate…

#7

naivejoe Wrote: ------------------------------------------------------- > No one thinks that the value of a SWAP is the > principle amount? the price of a SWAP is the > fixed rate… The notional amount is called “notional amount” (you refer to it as principle amount) The value of the swap is the PV of the payments The the price of a SWAP is the fixed rate

#8

d

#9

Floating part: stock price Fixed part: bond At initiation: priced at no arbitrage After initiation: value comes from change of stock price and PV of bond price So, D.

#10

naivejoe, so what is the correct answer?

#11

jogging Wrote: ------------------------------------------------------- > Floating part: stock price > Fixed part: bond > At initiation: priced at no arbitrage > After initiation: value comes from change of stock > price and PV of bond price > > So, D. Crap, you’re right. I didn’t pay attention, and I didn’t notice that it was an EQUITY swap. D) is the right answer IMHO

#12

“Swap Markets and Contracts,” Don M. Chance 2008 Modular Level II, Vol. 6, pp. 25 1-252 Study Session 17-66-e calculate and interpret the fixed rate, if applicable, on an equity swap and the market values of the different types of equity swaps during their lives This is the value of a swap as defined in the reference material. D OK, I got it. the value is NOT the payment. It is like unrealized gain or loss, depending on the future ALL cash flow…

#13

If the answer is "This is the value of a swap as defined in the reference material. " shouldn’t the answer be A, Yes the stmt is correct?

#14

I chose D…but figured from the description that they were implying A to be correct.

#15

any explanation on A? looks the most of us chose D instead

#16

A is correct for equity vs floating-interest rate swap but not for fixed interest rate swap. D is always correct.

#17

The value of the swap would be the amount to exit the position at a specific date.

#18

I put D.