Question

When parties exchange fixed cash payments for payments that depend on the returns to a stock or a stock index, they are purchasing a(n):

a) Insurance policy
b) Variable annuity
c) Equity swap
d) Options contract

Answer 1

An equity swap is a financial contract in which parties exchange fixed cash payments for variable payments based on the returns of a stock or stock index.

Step-by-step explanation:

When parties exchange fixed cash payments for payments that depend on the returns to a stock or a stock index, they are purchasing a equity swap.

An equity swap is a financial contract in which two parties agree to exchange cash flows based on the returns of an underlying equity instrument, such as a stock or an index. It allows investors to gain exposure to the performance of a stock or a stock index without actually owning the underlying asset.