Consider a Total Return Swap (On a Credit-Risky Bond)of Total

question 31

Multiple Choice

Consider a total return swap (on a credit-risky bond) of total returns against Libor.The receiver of total return in this swap has a position that is equivalent to

• A)A forward contract to buy the asset at a fixed price at maturity of the swap.
• B)A long position in the asset and short position in a floating-rate note.
• C)A short position in the asset and long position in a floating-rate note.
• D)An asset swap that delivers the asset in exchange for a floating-rate note.

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Definitions:

Preferred Stock

A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock, typically with fixed dividends.

Disclosure

The act of making information known, especially financial data in the context of accounting, to ensure transparency and informed decision-making.

Accounting Principle

Fundamental concepts or guidelines that govern the field of accounting and instruct the recording and reporting of financial transactions.

Reporting Entity

An entity for which there are users who rely on its financial statements as a major source of financial information about the entity.