# swaps duration

First find the net duration of the swap [Fixed - Floating] => .75(6) - .25 =>4.25

Then use the standard formula to adjust:

(3-6)/4.25 * B = Notional Principal Amount of Swap

You don’t include the portfolio size, but swaps correspond to portfolio sizes of:

A- \$486mm

B- \$500mm

C- \$531mm

Where is the portfolio value ? And is she receiving fixed or floating ?

Portfolio value was in the vignette in this case, it was \$500 million. If they want to reduce the duration, they would receive floating in order to add negative duration to the portfolio.

In my prep course they explained it quite simply… The formula for figuring out the notional principal is exactly the same as the one used to modify your duration/beta with futures. However, you’re only buying one contract, so set that equal to one and solve for what that contract must be worth.

My confusion here is that they gave portffoli duration as 6 years. So the D for Portfolio will be .75*6 correct?

But the solution does not show that-what am I thinking wrong?

No, the D for the fixed side of the swap is .75(6), The D for the portfolio is 6, and they want it reduced to 3.