An Equivalent Description of the Holding of a Receive-Floating Pay-Fixed

question 19

Multiple Choice

An equivalent description of the holding of a receive-floating pay-fixed swap is as follows:

• A) An exchange of a long position in a fixed-rate bond for a short position in a floating-rate note.
• B) A portfolio of long positions in forward-rate agreements (FRAs) for each swap payment date, all at the same fixed rate as the swap.
• C) A bond that pays the fixed rate minus the floating rate each period.
• D) All of the above.

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Definitions:

Net Income

The total profit or loss of a company after all revenues, costs, and expenses have been accounted for, typically reported at the bottom of the income statement.

Annual Amortization

The process of spreading out a loan or intangible asset's cost over its useful life, reflecting each year’s expense on the financial statements.

Investment Balance

Investment balance refers to the total value of all the securities or assets that an individual or institution holds in an investment account at a given point in time.