so, i reached the concept checkers for the swaps materials and noticed something that looked odd to me. schweser book 5 page 309 q.5 - the answer to this question doesnt un-annualize the annualized LIBOR spot rates. rather they take the PV factors as they are to calc the swap ratio. they have done this for questions on page 310 too. BUT, if you look at the very first swap example on page 292 and the other examples that follow it, there they unannualize the annualized LIBOR rates first i.e. multiply by 90/360 etc., then calc the PV factors based on the quarterly rates, and then calculate the swap ratio %. what am i missing here?
they do the work for you when they give you the PV factor. take your pg 309. the 0.98961 PV factor… how do you get this? take the 0.042 x 90/360 = 0.0105. add 1 and take the reciprocal to get the PV factor. whamo! it’s like they do number crunching for you when they give you the factors.
damn…wish i had not been too lazy to confirm that. effect of studying at work right after work. would you say that it would be worth the time to double check the PV factor on the real exam?
no- if they give it to you, just use it. but if they don’t give it to you, it’s one of the not too too bad things to figure out if they give you interest rates instead. you just let’s say if it were 4.8% as the 180 day rate- just do the .048 x 180/360, add 1 and take reciprocol to get .976563 as your PV factor. look on pg 296- once you get that PV factor, do yourself a favor and DRAW THE TIMELINE OUT like the do here. then you just figure out the cash flows and discount them back on the fixed side. floating side you only need to get to your next coupon payment date- that side is almost easier to do. but fixed rate side- draw a picture and i swear these will start to make sense soon.