The solution to 2.B. states the following:

"Duration of a four-year pay floating, receive fixed swap with quarterly payments = .75(4) - .125 = 2.875

Duration of a three year pay floating, receive fixed swap with semiannual payments = .75(3) - .25 = 2"

My question is, where do they get the .125 and .25 they use to subtract away from the duration of the bond? Thanks in advance!

It’s common practice to assume that the duration of a floating-rate bond (or payment, as in a swap) is half the amount of time between payments.

I’m pretty sure that the curriculum says that. Somewhere.

s2000 - it does say that, many times…I totally didn’t read the details at all to even think about that, thanks for the AHA moment!

You’re quite welcome.