Find the approximate upcoming net payment on an equity swap in which party A pays the return on stock index 1 and party B pays the return on stock index 2. The notional amount is $25 million. Stock index 1 starts the period at 1500 and goes up to 1600 at the end of the period. Stock index 2 starts the period at 3500 and goes up to 3300 at the end of the period.
a. The party paying index 1 pays about $238,000
b. The party paying index 2 pays about $238,000
c. The party paying index 2 pays about $3.095 million
d. The party paying index 1 pays about $25 million
e. The party paying index 1 pays about $3.095 million
Answer: E
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