SWAP Durations

I have yet to start taking the tests - I am still working though the CFAI books and problems for the second time. I’m at Reading 40 and working through the SWAP adjusment for duration. In it, you have to determine the est. duration on a flaoting instrument and a fixed instrument. Ex: Duration Fixed =~ 75% of its maturity Duration Float = .25 on semiannual payment… where: Duration PayFloat = Duration Fixed - Duration Float > 0 Duration Pay Fixed = Duration Float - Duration Fixed < 0 QUESTION: on the sample exams, have you seen anything related to this to solve? If so, do they give the duration of the floating or do you still have to figure it out? (for some darn reason, I cant get a grasp on the duration of the floating piece…)

floating duration is half the payment period 6 months = 3 month duration 3 months = 1.5 months duration ect. 1year = 1

i dont understand why they take half of what you would expect the duration to be for a floater. what i mean is for a monthly reset you would use 1/12 or .0833 but CFAI user 1/24 for a monthly reset?

on AVERAGE it will be average

THanks CSK - I was looking for the pattern - I was thrown off ny the two year example - I think i have it now… Two year swap with semiannual payments = Fixed = 1.5 (0.75x2) and Float = .25 1 year swap with month payments = Fixed = .75 and Float = .04167 (1/12 x .5) 3 year swap with quarterly payments = Fixed = 2.25 and Float = .125 Look good?

i dont know how you get duration of fixed leg man :-/ i only know for floating

Fixed they says is 75% of maturity… hell if I know…

Data_Monkey Wrote: ------------------------------------------------------- > Fixed they says is 75% of maturity… hell if I > know… CFAI book page #? i believe you, just wanted to see for myself :)?

just be carefull with .75 for 1 year fixed, that is no rule by any means, it was thrown as an example (I think the book said the duration for that bond in question was between .60 and 1.0 and they assumed .75), it can easilly be .80 or .70, but in the exam it will have to be given

p 224 - Volkovv is right… I think that goes without saying… I hope they give us that…

would think they would say use x% for the fixed rate duration or just tell us the fixed rate duration on the exam.

Yah - I hope so… Im done calculating shiznit…