Duration question - WHAT are they subtracting? Q2 Swaps EOC

CFA Level III
#1

The question:

Compute the duration of a four year pay-floating, receive fixed swap with quaterly payments. Duration of a fixed rate bond is 75% of maturity.

Answer : 75%*4-.125 = 2.875

What is the -.125??

Thanks!!

#2

http://www.analystforum.com/forums/cfa-forums/cfa-level-iii-forum/91340433

#3

it’s a quarterly pay swap. the Duration a of floating swap payment is the amount of time between reset dates. In this case, 0.25. Covention is to use half the duration of the floating rate duration. Since it’s an outflow, you subtract it.

#4

Thanks everyone - really appreciate it!