What the most logical pattern for this variation would be

Reference no: EM13543858

5. On December 2, the manager of a tactical asset allocation fund that is currently invested entirely in floating-rate debt securities decides to shift a portion of her portfolio to equities.
To effect this change, she has chosen to enter into the "receive equity index" side of a one-year equity swap based on movements in the S&P 500 Index plus a spread of 10 basis points. The swap is to have quarterly settlement payments, with the floating-rate side of the agreement pegged to three-month LIBOR denominated in U.S. dollars. At the origination of the swap, the value of the S&P 500 Index was 463.11 and three-month LIBOR was 3.50 percent. The notional principal of the swap is set for the life of the agreement at $50 million, which matches the amount of debt holdings in the fund that she would like to
convert to equity.
a. Calculate the net cash receipt or payment-from the fund manager's perspective-on each future settlement date, assuming the value for the S&P 500 index (with all dividends reinvested) and LIBOR are as follows:

Settlement Date Number of Days S&P Level LIBOR Level
December 2 (initial year) - 463.11 3.50%
March 2 (following year) 90 477.51 3.25
June 2 92 464.74 3.75
September 2 92 480.86 4.00
December 2 91 482.59 -
b. Explain why the fund manager might want the notional principal on this swap to vary over time and what the most logical pattern for this variation would be

Reference no: EM13543858

Questions Cloud

Evaluate its velocity at the end of this time interval : A particle moves along the x axis. It is initially at the position 0.210 m, moving with velocity 0.090 m/s and acceleration -0.340 m/s2. Find its velocity at the end of this time interval

Does the financial manager have a greater responsibility : Does the financial manager have a greater responsibility or a lesser responsibility for maintaining ethical corporate governance? Why or why not? What is or will be your approach to ethical corporate governance now or in the future?

Explain gaseous +1 monatomic ion at constant temperature : The first ionization energy for rubidium is +403.0KJ/mol. How much energy would be required to convert 17.1g of gaseous rubidium to its gaseous +1 monatomic ion at constant temperature

Internet search on undergraduate research conferences : Do an Internet search on undergraduate research conferences or a similar term, find an interesting undergraduate research conference or event that you might like to attend, and post a short description of that conference or event.

What the most logical pattern for this variation would be : b. Explain why the fund manager might want the notional principal on this swap to vary over time and what the most logical pattern for this variation would be

Find at what angular speed does the bar-clay system rotate : On a frictionless table, a glob of clay of mass 0.42 kg strikes a bar of mass 1.98 kg perpendicularly at a point 0.39 m from the center of the bar and sticks to it. At what angular speed does the bar/clay system rotate about its center of mass afte..

Explain the compounds with the generic formulas : Consider the compounds with the generic formulas listed below and their corresponding molar solubilities in pure water.

Calculate the average interaction force on the stick : In outer space, a baseball of mass m = 0.140 kg travels at velocity vi = (2.00 m/sec, 5.00 m/sec, 0); let the z-axis be up out of the plane of paper. calculate the average interaction force on the stick

Importance of technological progress and human capital : A theory of economic growth cannot ignore the importance of technological progress and human capital. Discuss whether you agree or disagree with this statement using evidence to support your argument.

User Account

All Pages