Swap Fixed Rate

CFA Level II Fixed Income
#1

I can find the swap fixed rate from the below question using the zero-coupon discounts, but I can’t seem to calculate the same answer using the spot rates. Am I using the spot rates incorrectly to calculate discount ratio?

Also, using the 1 year spot rate, shouldn’t the 1 par bond be .9704 rather than the $.9615?

Prices of zero-coupon, $1 par bonds is shown below:

**Maturity (years)**Price 1 $0.9615 2 $0.9070 3 $0.8396 4 $0.7629

The default risk of these bonds is similar to the default risk of surveyed banks based on which the swap rate is determined. Government spot rate curve is given below:

**Maturity (years)**Rate 1 3.05% 2 4.10% 3 5.25% 4 6.45%

The swap fixed rate for a period of 2 years is closest to:

#2

None of the prices correspond to the given spot rates.

#3

Strange… This came from schweser… The answer said because the par discounts are given, use that to calculate the swap fixed rate rather than doing it the long way from the spot rates.

#4

I agree with their approach.

Their numbers are simply wrong.

It may not be all that strange.

(By the way: their prices correspond to spot rates of 4%, 5%, 6%, and 7%, respectively.)