Why do we use swap C ( Maturity : 5years; Duration: -3.625) in the denominator of the formula ?
Some help will be much appreciated.
should use search function.
it is in the errata.
For some f… reason can not find it!!
B and C are correct.
I appreciate the response summerside182, I do get the formula and how we calculate the denominator in the formula , but what I am stuck is why using Swap B and C ( as you mentioned)
Thanks.
you can use wtv swap you want.
2 answers are correct, using the 5yr and the 3yr, the other one you wont arrive at an answer.
Actually, it depends on when you downloaded the mock. If you downloaded BEFORE May 23rd, then both B and C are probably correct. If you downloaded AFTER May 23rd, then only B should be correct.
And there’s no particular reason to use the 5-year, just that it’s the only one that arrives at one of the answer choices (the other ones don’t).
Got you !! Thanks guys…
Shouldn’t the swap have the same maturity as the bond? If I recall correctly the bond had a 5 year life that’s why i went for the 5 year swap.
That is the only rationale I can think of …