# Mock Exam Swap Notional Calc

Has anyone notice a possible error in how they calculated the notional? I don’t want to give the answer so I won’t post details.

Didnt’ notice an error there. Explain. People that haven’t taken the mock can just ignore this thread. I have an issue with question #51 though. Want to know why they didn’t use the yield beta.

The denominator in the calc of the swap notional should contain the modified duration of the entire swap, not just the modified duration of the pay-fixed side of the swap. So I believe the denominator should be -2.15 and not -2.40 (assuming .25 md for floating semi-annual). CFAI is dividing by the -2.40, which I think is wrong. You’ll still get the correct answer if you choose the amount closest to the answer choices.

I see what you mean, but given the duration is negative, they are referring to the duration of the entire swap, (from the pay-fixed side’s perspective), not of only the fixed position. “Serra decides to use a swap that has a modified duration of -2.40 years for the pay-fixed side…” This language would seem to suggest they are referring to the swap itself. Take a look at Q#51.

eastcoaster9 Wrote: ------------------------------------------------------- > I see what you mean, but given the duration is > negative, they are referring to the duration of > the entire swap, (from the pay-fixed side’s > perspective), not of only the fixed position. > > “Serra decides to use a swap that has a modified > duration of -2.40 years for the pay-fixed side…” > This language would seem to suggest they are > referring to the swap itself. > > Take a look at Q#51. Hmm, the duration is negative but it could be less negative if we add in the duration of the floating rate side. I see what you’re saying, but I think the distiction needs to be made between the swap itself and what side is being taken. Maybe if they put a comma after “swap that has a modified duration of -2.40 years” it would have been more clear to me.

The ‘fixed’ side of the swap has a positive duration. A ‘pay-fixed’ swap has a negative duration, (Dur(floating side) - Dur(fixed side), or (small positive - Large positive) = <0 . I don’t think you would see the fixed position ever presented as a negative.

eastcoaster9 Wrote: ------------------------------------------------------- > The ‘fixed’ side of the swap has a positive > duration. A ‘pay-fixed’ swap has a negative > duration, (Dur(floating side) - Dur(fixed side), > or (small positive - Large positive) = <0 . I > don’t think you would see the fixed position ever > presented as a negative. I pay fixed and receive floating. If the modified Duration of the fixed leg is say, 3, and the modified duration of the floating leg is say .25, then from my perspective the swap has a modified duration of -3 + +.25 = -2.75. It’s less negative (-2.75) then just taking into account the md of the fixed side alone (-3). That’s all I meant.

Understand completely what you’ve been saying since the beginning, but no where in the material is the fixed side alone ever expressed as a negative. The material doesn’t assess perspective, payer vs. receiver, (positive vs. negative MD) until the swap is formed. I would advise doing it the CFA way to avoid any further confusion in this area. That’s all the time I’m devoting to this as you haven’t looked at Q51… quid pro quo.

eastcoaster9 Wrote: ------------------------------------------------------- > Understand completely what you’ve been saying > since the beginning, but no where in the material > is the fixed side alone ever expressed as a > negative. The material doesn’t assess > perspective, payer vs. receiver, (positive vs. > negative MD) until the swap is formed. I would > advise doing it the CFA way to avoid any further > confusion in this area. > > That’s all the time I’m devoting to this as you > haven’t looked at Q51… quid pro quo. I think because the portfolio contains treasuries and the hedging instrument is a treasury future then the yield beta is assumed to be 1. However there are also corporates which can behave differently than treasuries, so that would argue for using a yield beta other than 1. I guess i got lucky on this one because I ignored the yield beta, but you may be entirely correct that the given yield beta should’ve been used.