Hey guys,
I assume 100% on the CFA 2019 AM exam and got the question wrong. Is the the convention to assume fixed payer duration is 75% times maturity? I must have missed this while studying
On a swap;
Fixed = 75% of duration (years)
Float = - (1/Number of payments per year) * 0.5
what question is this?
Mock exam A number 52
Kaplan does a terrible job covering how to calculate the duration of a fixed and floating swap…
D(floating) = .5 x reset period (ex) semi-annual bond = .5 x .5 = .25
D(fixed) = .75 of the maturity (ex) 4 year bond = .75 x 4 = 3
D[payer swap) = .25 - 3 = -2.75
this ages sense because we want to reduce duration so our swap duration will be negative to reflect that.
They did use the 75% of maturity in this problem.
75% of a fixed rate conventional bond with same maturity and for the variable side, .5 or (1/2) of the reset period. Semi is .5 x .5 and quarterly reset is .5 x .25. Swap D is the net of the two (negative to decrease D and positive to increase D)