An asset manager thinks that the future is rosier for


An asset manager thinks that the future is rosier for larger capitalization stocks than the small capitalization stocks he holds in his portfolio. Rather than selling the stocks he will reduce his exposure to the small capitalization stocks in his portfolio by using a swap in which he agrees to pay a dealer the return on a small-cap index based on a notional $50,000,000. In return, the dealer agrees to pay him a return on a large-cap index on the same notional amount. The payments are semi-annual. If the small cap index moves from 200.00 to 205.00 while the large-cap moves from 600.00 to 585.00 for the same semi-annual period, what net payment will the  asset manager pay the dealer at the end of the period?

−$2,500,000

−$1,250,000

0

$1,250,000

$2,500,000

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Financial Management: An asset manager thinks that the future is rosier for
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