I am once again asking for your help
Scheweser book 4 fixed income, LOS 32F swap rate curve. I am stuck on how to calculate this and its driving me nuts.
Can someone break down the mathematical sequence to solve the swap fixed rate tenor of 2 years and get their answer 3.98%? The answer is #2 below, but I have no idea how to get solve for it.
Example: Swap rate curve
Given the following Libor spot rate curve, compute the swap fixed rate for a tenor of 1, 2 and 3 years (i.e., compute the swap rate curve).
Maturity Spot Rate
1) SFR1 can be computed using the equation:
SFR1/(1+S1) + 1/(1+S1) = 1
SFR1/1.03 +1/1.03 = 1; SFR1 = 3.00%
2) SFR2 can be similarly computed:
SFR2/(1+S1) + SFR2/(1+S2)2 +1/(1+S2)2 =1
SFR2/1.03 + SFR2/(1.04)2+ 1/(1.04)2 =1; SFR2 = 3.98%
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