I dont really understand this explanation, is there a simpler way to calculate sfr’s for a given maturity?
Hey there Lloyd !
Give this a go. It helped me.
the problem asks you to calculate the swap spread, which is the difference between the fixed rate and the spot rate. for a non-deferred swap, the fixed rate lasting for t years is given by
SWAP = ( 1 - Pt ) / ( P1 + P2 + … + Pt)
where Pt is the price of a t-year zero-coupon bond
in this case, SWAP = (1 - .8396) / (.9615 + .9070 + .8396) = .059229718
the spot rate for 3 years is already given to be 5.25% or .0525
therefore, the swap spread is SWAP - spot rate = .059229718 - .0525 = .006729718 or .673%
the formula for the swap should be somewhere in your cfa notes. memorize it.