Equity Return Pay Fixed Swap from Schweser Test

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JeffO15

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On their live online mock one of the questions asks to calculate the value of a semiannual Pay fixed recv equity return swap after 1 year has passed. Valuing the pay fixed side is easy but on the receive equity return side all they include is the notional principal saying only notional principal is exchanged at each settlement date.
Why isn’t the value of the index calculated and you either pay if it is a loss or receive if it is a gain at each settlement? Doesn’t make sense to me.
 
Same question I had, but apparently it is something we should just know - that on settlement dates, the value of the receive equity index side will always be the notional. Check out their video explanation.
 
This makes no sense as written.
The pay equity side pays the return on the notional principal. For example, if the return is on an index, the index value is 1,500 at the beginning of the period and 1,650 at the end of the period, and the notional principal is $10 million, then the equity return payer pays (1,650/1,500 − 1) = 10% on $10 million, or $1 million.
 
I thoughts the same thing. But they don’t even calculate the equity return. Just state each settlement is return of notional principal.
 
@S2000magician: This question has shown up in two of Kaplan’s mocks (different numbers of course, but same concept) - the official online mock and one of the practice ones - and both times it had the same explanation. I will just memorize and replicate if it shows up on the real test
 
I don’t remember seeing it in another mock. I know the floating rate payment resets to par at each settlement and that is in other mocks.
 
@JeffO15: Check out
Schweser Vol 2, Exam 3, Morning, Question ID: 627751, #57
It speaks to the same equity index topic, but this time with a floating payment side.
 
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