Test Your Knowledge - Derivatives

Consider a fixed notional equity swap where the total return on an equity index is swapped for 6-month LIBOR. The notional amount of the swap is USD 1,000,000 and settlement/payment is every 6 months. At a particular settlement/payment date we have the following information:

  1. The total return on equity index over the previous 6 months = 20%
  2. 6-month Libor from previous reset data = 5.25%

Q. What will the net payment be on this payment settlement date?

A) USD $26,250 to the equity receiver
B) USD $26,250 to the equity payer.
C) USD $173,750 to the equity received.
D) USD $173,750 to the equity payer

Reveal the Answer

The answer is C) USD 173,750 to the equity received.

What is the Derivatives Professional Certificate?

Develop a comprehensive, practical understanding of derivative instruments including market conventions, contract specifications, valuation, trading strategies and the regulation of derivatives markets.

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March 2020, Derivatives Professional Certificate

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