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?

In example 17 they specify that it’s a 30/360 day count, which suggests that the interest rate is LIBOR. LIBOR is a nominal interest rate, so 0.4% per quarter would be quoted as 1.6% annually.

In the site exercise, does it specify a 30/360 day count? Or does it say that it’s LIBOR? Or does it say that the effective annual rate is 3.2%?

(I don’t have access to the site exercises, which is why I’m asking.)

Thanks s2k

this is what it says about the rate;

The swap is structured as a quarterly reset, 30/360 day count, with a notional value of ZAR 5,000,000. The fixed rate is 3.2% annually.


Well, in that case, it should be 0.8% quarterly and their calculation is stupid.