For a pay-floating counterparty, the duration of the swap will generally be less than the duration of the fixed-rate payment.

True/False?

I made mistake every time I saw it. This kind of question is purely for exam. (Notes B4, P248, Q8)

For a pay-floating counterparty, the duration of the swap will generally be less than the duration of the fixed-rate payment.

True/False?

I made mistake every time I saw it. This kind of question is purely for exam. (Notes B4, P248, Q8)

pay floating is receiving fixed.

Fixed side has a higher duration generally.

So they have + Large - Small.

Duration will increase for this party.

Now let me see the question being asked…

the duration of the swap will generally be less than the duration of the fixed-rate payment.

That statement is true. Duration of a Receive Fixed Pay Floating e.g. 2 Year Semi Annual Swap will be 0.75 * 2 - 0.5 * .5 = 1.25 (Positive) which is less than the duration of the fixed rate Payment of 1.5

CPK, I saw some example show the duration for fixed-payer equal to 0.75*…

Is that 0.75 is fixed? or that is a simple assumption for the examples?

Though I agree with your answer, but what happen if it is something like 0.9 and the floating quarterly reset…?

He receives the fixed payment , he pays the floating payment .

Sign of the receive-fixed is positive .

Sign of the swap is also positive .

Value of the swap is less than value of the fixed payment

1.both are positive

- Swap is less in magnitude

3, So Swap is less algebraically.

So it is True

Sorry, my stupid ques,…duration of float counter alway less than fixed. But why they use **generally**?

truongdv - convention followed in the cfai curriculum is that the duration of a fixed side = 0.75 * Fixed Maturity (duration).