Question

TUTORIAL SWAPS 1. An asset manager who manages a fund called Verizon Fund follows a passive investment strategy and his portfolio tracks the S&P 500 Total Returns Index. The asset manager can enter into an equity swap contract with a counterparty Morgan Stanley with the following terms Notional Principal: $200 million Verizon Fund pays: Total retums on the S&P 500 Index Morgan Stanley pays: Fixed 690 Payments to be made at the end of every six months, that is, 30th June and 31st December The swap has a maturity of 1 year The return of the index is given in the below table Date Jan 30t" June 31st Dec S&P Index level 1800 1890 1760 1

Answer 1