Johnson next reviews an equity swap with an annual reset that the bank entered into six months ago as the receive-fixed, pay-equity party. Selected data regarding the equity swap, which is linked to an equity index, are presented in Exhibit 4. At the time of initiation, the underlying equity index was trading at 100.00.
Exhibit 4. Selected Data on Equity Swap
Swap notional amount $20,000,000
Original swap term Five years, with annual resets
Fixed swap rate 2.00%
The equity index is currently trading at 103.00 and relevant US spot rates, along with their
associated present value factors, are presented in Exhibit 5.
Exhibit 5. Selected US Spot Rates and Present Value Factors
Maturity (years) Spot Rate Present Value Factors
0.5 0.40% 0.998004
1.5 1.00% 0.985222
2.5 1.20% 0.970874
3.5 2.00% 0.934579
4.5 2.60% 0.895255
Q:- Based on Exhibit 5, the current value of the equity swap described in Exhibit 4 would be zero if the equity index was currently trading the closest to:
A. 97.30.
B. 99.09.
C. 100.00.
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The question seems incomplete please provide the interest-rate information which would have been provided in the item set.
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Refer to the screenshot.