hi fellow sufferers.
Talking bout equity swaps.
in the book example 17 of Forward commitments: there’s the return of the index, and also the fixed rate of 1.6%, there’s quarterly pay’ts, so we pay 0.4% per Quarter. (says the book)
so far so good.
Now i’m doing the exercises on the site, bout a bloke from South Africa, seems like a good guy.
He’s the counterparty for a one-year swap in which the client is seeking to enter into a receive-equity returns and pay-fixed arrangement. The fixed rate is 3.2% annually.
Now here’ the thing, in the answer it says the quarterly rate is calculated as [(1 + 0.032)1/4]-1 = 0.0079
Why the fuck is that calculated differently pls?
i dont understand why that’s different?