When using the (1 - z1/z1 + z2 + z3 + … zn) formula for figuring out the fixed rate for swaps, how do you account for swaps that are for more then a year in length? Lets assume semiannual payments and say… z1 is a 180 day swap and lets say its 4%…so its z1 = (1/ 1 + .04 (180/360) z2 is a 1 year swap and its 5%…so its z3 = (1/1 + .05 (360/360) Now lets say z3 is a 1.5 year swap and its 6%. How do you do the z3 formula? Would it be [(1/1 + .06 (540/360)]? Similarly, what about the PV factor for a 2 year swap? Thanks!
brafique Wrote: ------------------------------------------------------- > When using the (1 - z1/z1 + z2 + z3 + … zn) > formula for figuring out the fixed rate for swaps, > how do you account for swaps that are for more > then a year in length? Lets assume semiannual > payments and say… > > z1 is a 180 day swap and lets say its 4%…so its > z1 = (1/ 1 + .04 (180/360) > z2 is a 1 year swap and its 5%…so its z3 = (1/1 > + .05 (360/360) > > Now lets say z3 is a 1.5 year swap and its 6%. How > do you do the z3 formula? Would it be [(1/1 + .06 > (540/360)]? > > Similarly, what about the PV factor for a 2 year > swap? > > Thanks! You are correct. 540/360
brafique Wrote: ------------------------------------------------------- > When using the (1 - z1/z1 + z2 + z3 + … zn) > formula for figuring out the fixed rate for swaps, > how do you account for swaps that are for more > then a year in length? Lets assume semiannual > payments and say… > > z1 is a 180 day swap and lets say its 4%…so its > z1 = (1/ 1 + .04 (180/360) > z2 is a 1 year swap and its 5%…so its z3 = (1/1 > + .05 (360/360) > > Now lets say z3 is a 1.5 year swap and its 6%. How > do you do the z3 formula? Would it be [(1/1 + .06 > (540/360)]? > > Similarly, what about the PV factor for a 2 year > swap? > > Thanks! (1/(1+(x*(720/360)))
brafique Wrote: ------------------------------------------------------- > When using the (1 - z1/z1 + z2 + z3 + … zn) > formula … Do remember that the numerator is 1 - Zn, not 1 - Z1 