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Draw a diagram to illustrate the use of total return swap. Assume James wants to swap the return of $30M S&P stock portfolio to a bond fund in exchange for a return of 2% risk free rate in 6 months.

Draw a diagram to illustrate the use of total return swap. Assume James wants to swap the return of $30M S&P stock portfolio to a bond fund in exchange for a return of 2% risk free rate in 6 months.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Question 6 Wilson is an equity fund manager. 95% of his portfolio is equity. During an internal meeting with the treasurer, Wilson was informed that the global business atmosphere will be poor in the next 6 months. However, as an equity fund manager, he cannot sell many stocks to buy other assets. His colleague, Ken, suggests him to use total return swap to transfer the risk. Draw a diagram to illustrate the use of total return swap. Assume James wants to swap the return of $30M S&P stock portfolio to a bond fund in exchange for a return of 2% risk free rate in 6 months.
Transcribed Image Text:Question 6 Wilson is an equity fund manager. 95% of his portfolio is equity. During an internal meeting with the treasurer, Wilson was informed that the global business atmosphere will be poor in the next 6 months. However, as an equity fund manager, he cannot sell many stocks to buy other assets. His colleague, Ken, suggests him to use total return swap to transfer the risk. Draw a diagram to illustrate the use of total return swap. Assume James wants to swap the return of $30M S&P stock portfolio to a bond fund in exchange for a return of 2% risk free rate in 6 months.
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