The future is rosier for larger capitalization stocks

Assignment Help Financial Management

Reference no: EM131603523

An asset manager thinks that the future is rosier for larger capitalization stocks than the small capitalization stocks he holds in his portfolio. Rather than selling the stocks he will reduce his exposure to the small capitalization stocks in his portfolio by using a swap in which he agrees to pay a dealer the return on a small-cap index based on a notional $50,000,000. In return, the dealer agrees to pay him a return on a large-cap index on the same notional amount. The payments are semi-annual. If the small cap index moves from 200.00 to 205.00 while the large-cap moves from 600.00 to 585.00 for the same semi-annual period, what net payment will the asset manager pay the dealer at the end of the period?

−$2,500,000

−$1,250,000

$1,250,000

$2,500,000

Reference no: EM131603523

Questions Cloud

How much money did you actually deposit into the account : Upon retirement (40 years from now) you want to receive $2000 each month for a period of 28 years. How much money did you actually deposit into the account?

Calculate the expected rate of return on investments : Calculate the expected rate of return on investments X and Y using the most recent years data.

Access to fixed rate and floating rate of euribor : Suppose firm ABC has access to fixed rate 7.5%, and floating rate of Euribor + 1.0%,

According to capital asset pricing theory : According to Capital Asset Pricing theory, in a competitive marketplace which type of risk is rewarded and which kind is not?

The future is rosier for larger capitalization stocks : An asset manager thinks that the future is rosier for larger capitalization stocks than the small capitalization stocks he holds in his portfolio.

What is the present value of security : What is the present value of a security that will pay $5,000 in 20 years if securities of equal risk pay 7% annually? What will be the loan's EAR?

What is the value of preferred stock : (Preferred stock valuation?) What is the value of a preferred stock when the dividend rate is 16 percent on a $100 par? value?

Risk reduction through diversification in portfolio : As the correlation between the stock returns increases, the risk reduction through diversification in a portfolio of two stocks:

You would be willing to pay per year to lease coper : what is the most you would be willing to pay per year to lease the coper (first lease payment is due in one year)?

User Account

All Pages