What Floating rate to use in Equity Index swap on reset day?

CFA Level II Derivatives
#1

I am doing Topic Test named- Whitney from Derivative section. I see 2 questions around floating rate calculation

  1. Pay floating - Receive fixed for 1 year quarterly payment contract. Calculate value after 90 days of starting the contract. => Here, answer shows floating rate value as 1 because rates have just reset (bcs exactly 90 days have passed). This I understood.

2. Pay floating - Receive equity index return. 1 year quarterly floating payment. Calculate value after 90 days of starting the contract. => Here, the answer is not using float reset value 1 for pay float side. Instead they have used interest rate of past 90 days.

I wonder why floating rate values should differ in both cases. Schweser notes say that calculation should be the same (page 150 from book 4).

Can someone please help?

#2

I am trying to wrap my head around this as well… how are you supposed to know on payment date if floating has reset or not. Two different answers in this topic test…

Anyone?

#3

The floating rate always resets on a payment date.

If you’ve seen a question in which it didn’t, the question’s wrong.

#4

I have a dumb question. does the floating rate side reset on payment date apply to all types of swaps involving float side, bond, equity, interest? I thought it only applies to bond.

#5

Or op has misread the question, which in this case he/she has :wink:

#6

Yo,

This question asks for cash flow at the reset date. Not the value. Read the question again and the answer will make sense.