Consider a Pension Fund Manager That Wishes to Convert €10

question 12

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) the pension fund receives LIBOR and pays an equity return based on notional principal of €5 million.
• B) the pension fund pays LIBOR and receives an equity return based on notional principal of €5 million.
• C) the pension fund receives LIBOR and pays an equity return based on notional principal of €10 million.
• D) the 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:

Single, Unique Product

A product that is the only one of its kind and has no close substitutes in the market.

Blocked Entry

A situation in which new firms are prevented from entering a market due to high barriers to entry, such as high startup costs or strict regulations.

Oligopoly

A market structure characterized by a small number of firms controlling the majority of market share, leading to limited competition.

Difficult

Requiring considerable effort or skill to accomplish, deal with, or understand.