Consider a Pension Fund Manager That Wishes to Convert $10

question 13

Multiple Choice

Consider a pension fund manager that wishes to convert $10 million from notes paying LIBOR to stocks,using an equity swap.The equity swap should be structured so that

• A) Pension fund receives LIBOR and pays an equity return based on notional principal of $5 million.
• B) Pension fund pays LIBOR and receives an equity return based on notional principal of $5 million.
• C) Pension fund receives LIBOR and pays an equity return based on notional principal of $10 million.
• D) Pension fund pays LIBOR and receives an equity return based on notional principal of $10 million.
• E) None of the above.

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Definitions:

Positive Incentives

Incentives designed to encourage and reinforce desirable behaviors by providing rewards or benefits.

Self-Interest Theory

A theory suggesting that individuals' decisions are motivated by personal gain or benefits, emphasizing the role of self-benefit in human behavior.

Hedonic

Related to or considered in terms of pleasant (or unpleasant) sensations.

Utilitarian

Relating to the ethical theory that actions are right if they are useful or for the benefit of a majority, focusing on the outcomes being beneficial for the greatest number of people.