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Assignment X.5

N

no_name

Member
Hi,

Sorry if I've missed something obvious here but could someone explain to me how the duration of the swap has been calculated in question X5.2(vi) please?

Follow up question on exam technique - if I come across something like this where I don't know the first part of the question, could I make an assumption for the duration and then continue with the question? Will I still get some marks for this part and the following part?
 
The swap has been treated as a fixed coupon 10 year bond with a coupon of 1.8% and a floating rate bond. the duration of the fixed bond has been calculated using the standard weighted mean term of the payments formula. The duration of a floating bond is basically zero, so the duration of the swap is the difference.
In terms of making assumptions, it varies from exam to exam, but often the markers will try not to penalise "follow on" errors, where a slight mistake has been made at the start of a question which then affects the rest of it. If you use the right methodology after the duration assumption, you will usually get full marks for that part.
 
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