A variable notional equity swap differs from a fixed notional equity swap in that
A) The variable notional swap involves a principal that, like an amortizing swap, decreases from period to period in a predetermined manner.
B) The variable notional swap involves a principal that changes from period to period depending on realized returns on the underlying equity or equity index.
C) The variable notional swap involves a principal that changes from period to period depending on realized Libor rates during the receding period.
D) In a variable notional swap, the receiver of equity returns can choose whether to pay Libor or the returns on a specified broad market index on each payment date.

Question

A variable notional equity swap differs from a fixed notional equity swap in that 
A) The variable notional swap involves a principal that, like an amortizing swap, decreases from period to period in a predetermined manner.
B) The variable notional swap involves a principal that changes from period to period depending on realized returns on the underlying equity or equity index.
C) The variable notional swap involves a principal that changes from period to period depending on realized Libor rates during the receding period.
D) In a variable notional swap, the receiver of equity returns can choose whether to pay Libor or the returns on a specified broad market index on each payment date.

Quizplus · Accepted Answer

In a variable notional equity swap, the principal changes from period to period based on the actual returns on the underlying equity or equity index, unlike a fixed notional equity swap where the principal remains constant.

A Variable Notional Equity Swap Differs from a Fixed Notional