Consider a Fixed Notional Equity-For-Floating Rate Swap $x$ ,Where the Spread $x$

question 6

Multiple Choice

Consider a fixed notional equity-for-floating rate swap.The fair price of the swap is to exchange equity for Libor plus a spread $x$ ,where the spread $x$ is

• A)Greater than zero if the Libor payer has a lower rating than the equity return payer.
• B)Greater than zero if the equity return payer has a lower rating than the Libor payer.
• C)Always less than zero because the Libor leg has lower volatility than the equity leg.
• D)Zero regardless of credit rating considerations.

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Definitions:

Per-worker Production Function

A mathematical representation that shows how the amount of output per worker in an economy is affected by the level of capital per worker.

Capital Per Worker

Capital per worker is a ratio that measures the amount of capital assets (such as equipment and machinery) available for each worker, often used as an indicator of labor productivity.

Output Per Worker

The average quantity of goods and services produced per employee in a given time period.

Economic Growth

An increase in the production of goods and services in an economy over a period of time, often measured by GDP growth.