(Answered) Question suppose the risk-free interest rate is 3 and the

Finance

Question: Suppose the risk-free interest rate is 3% and the equilibrium expected total return risk premium on property investments is 3.5% (hence, equilibrium expected total return on real estate investment is 6.5%). What will be the equilibrium (bid-ask spread midpoint) price (fixed-leg rate) for a real estate index total return swap:

(a) If the underlying index is in equilibrium (no lag effect)? and

(b) If the expected average annual total return on the index during the period of the contract is 10%?

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