A Portfolio Manager Enters into a Total Return Swap

question 18

Multiple Choice

A portfolio manager enters into a total return swap.She swaps 50% of her $50 million index based portfolio for 4.5% yield bonds.If the annualized total return on the index is 2.5%,what net cash flow will the manager experience under the swap agreement?

• A) + $250,000
• B) -$250,000
• C) + $500,000
• D) -$500,000

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Definitions:

Average Rate

The mean quantity or figure computed by dividing the sum of all measured quantities by the number of quantities.

Above Average Profits

Earnings that exceed the norm for a particular industry or sector, often resulting from competitive advantages or efficient operations.

Controls Small Share

The act of managing or influencing a minor portion of the market or resources.

One Seller

Indicates a market structure known as a monopoly, where a single company or entity controls the entire supply of a product or service, facing no competition.