# Floating Rate Duration

According to the text p.483 last complete paragraph That a floating rate bond’s duration for the math problems is 1/2 Time to payment So If quarterly use .125 If semiannual, use .25 if annual use .5 If 10 years use 5, etc… Does that look right? Its always half of the time till payment?

i believe u mean hlf the time in between coupon payments

yes, and no to 10 yrs use 5. if it’s a fixed and assume duration of the fixed rate bond = 0.75% of its maturity- 1 year swap semiannual = .25 - .75 1 year swap quarterly = .125 - .75 if it were a 2 year swap w/ quarterly payments = .125 - .75(2) if it’s a pay floating, it’s backwards- 1 year with quarterly payments = 0.75 - .125 2 year with quaterly payments = .75(2) -.125

well, if it is a floating rate duration with payments every 10 years wouldnt you use 5? lol…

ha yeah whoops. i need to stop studying today. my brain is not working.

ha haaa tell me this isnt a “CFAI-like” concept. the question would be framed around a 40 year swap with decadely settlement

SkipE99 Wrote: ------------------------------------------------------- > ha haaa tell me this isnt a “CFAI-like” concept. > the question would be framed around a 40 year swap > with decadely settlement No kidding…just to torture us… Funny - i was just using it as an extreme example, but to frame the concept…point being, no matter what the coupon, subtract the fixed from 1/2 the coupon duration correct? 3 year coupons, 1.5 - fixed right?

my understanding: floater: - 1 hour before the closest coupon rate is fixed, the duration is zero - 1 hour after the closest coupon rate is fixed, the duration is equal to coupon period on average (we dont know exact date/time) the duration is 1/2 of coupon period but this average d. is inaccurate duration if we know exact day/time of calculation of duration, we will not need to use this average duration calculating average duration for coupon periods like 3 years (or 10y) long would not make sense, I think