In Q2, it asked for the notional principal of the IRS.
My question is, how do you know which swap to use? 3 were provided, with maturity at 2y, 3y and 3.5y. I dunno which one to choose, so I thought with a target duration of 3, I went with the 3y one, but the answer went for the 3.5y one. Why is that?
Anna Leigh portfolio manager for Brown and white capital management; from the CFAI qbank? Question 2 was talking about futures contracts? Are you referring to Question 6?
Historically, CFA Institute has wanted you to choose the swap with the smallest notional value.
After reading the comments here and on the CFAI Q bank, it’s going for the smallest NP, hence you want to choose the swap with the highest duration (in absolute value) according to the NP formula. Thank you.