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Debora [2.8K]
3 years ago
13

Credit Derivative. In a total return swap, Party A receives LIBOR 3%. Party B receives the total return on a certain equity inde

x on a principal of $100,000. Suppose at swap maturity LIBOR is 5% and the index return is 6%. According to the swap, how much should Party A pay and receive
Business
1 answer:
dusya [7]3 years ago
5 0

Based on the provisions of the swap, Party A will pay $6,000 and receive $8,000.

<h3>How much will Party A pay?</h3>

Party A will pay the total return of 6% on the equity index capital:

= 6% x 100,000

= $6,000

<h3>How much will Party A receive?</h3>

Party A is to receive the rate of LIBOR + 3%. LIBOR is 5% so Party A will receive:

= 5% + 3%

= 8%

Total return is:

= 8% x 100,000

= $8,000

In conclusion, Party A will pay $6,000 and receive $8,000.

Find out more on LIBOR at brainly.com/question/26033099.

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