In a Fixed Notional Equity-For-Floating Interest-Rate Swap, the Theoretical Fair

Multiple Choice

In a fixed notional equity-for-floating interest-rate swap, the theoretical fair swap spread (the spread over Libor paid by the equity return receiver) is

A) Greater than zero because equity returns are generally higher than Libor rates.
B) An increasing function of equity market volatility.
C) A decreasing function of expected equity market returns.
D) Zero.