I believe I am slightly confused over the duration for floating rate bonds following my initial studying and subsequent Errata corrections. Is Duration for a floating rate bond equal to the ENTIRE time until the next payment or HALF of the time? i.e. for a semi-annual floating rate bond that just reset, is the duration 0.25 or 0.5? I remember doing problems that seemed to give different answers that worked in both cases (i.e. one Schweser problem arguing there was 0 net duration at the beginning of the year in an annual-reset bond, which suggest the floating rate duration is the entire time period, while the CFA mock exam states the duration is half the time until payment) Thanks
Time to next reset date. On average this equal 0.5 x frequency.
Ok, so just to clarify… If a FRN has just reset, the duration is equal until the next reset period (i.e. if its a semi-annual bond, then the duration would be 0.5) If we are not explicitly told the option just reset, we use the assumption the FRN is, on average, mid-way through its reset period and thus the 0.5 * frequency…
CFAI assumes that duration of fixed side of 1y swap is 0,75. That means that the duration of for instance 3y swap is 3*0,75-0,5*0,5=2 Right?
^^ Things are not that simple…
Almost every question I’ve seen has used HALF the time of the floating reset.