Consider an equity swap of the equity index return versus six-month Libor. The current equity index is at 1100. The six-month Libor rate is currently 11.50%. There are 184 days in the given six month period. What should be the level of the index in 6 months for the net payment in six months to be zero?
A) 1100.
B) 1165
C) 1227
D) 1422

Question

Consider an equity swap of the equity index return versus six-month Libor. The current equity index is at 1100. The six-month Libor rate is currently 11.50%. There are 184 days in the given six month period. What should be the level of the index in 6 months for the net payment in six months to be zero? 
A) 1100.
B) 1165
C) 1227
D) 1422

Quizplus · Accepted Answer

For the net payment in six months to be zero, the return on the equity index must equal the return on the six-month Libor. The six-month Libor return can be calculated as follows: $1100 \times \left(1 + 0.115 \times \frac{184}{360}\right)$. This calculation gives a result of approximately 1165. Therefore, the level of the index must be 1165 for the net payment to be zero.

Consider an Equity Swap of the Equity Index Return Versus