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1-how do you calculate disc factor if it is semi annually like in this case?
plz tell for atleast 2 yrs periods semi annually as to fig out the chain.
2- why are we not calculating @6.20% even for the period of 6 mnths-1 yr.
2-nd swap questions should be done in excel worksheet or word processor?1. You use the formula provided for the discount factor in the normal way (or use the function in the spreadsheet).
6 months is half a year, and so the factor for 6 months at 5.7% is (1/1.057)^1/2
The factor for 18 months is (1/1.062)^3/2(However the examiner has changed twice since this question was set and I would be very surprised if the current examiner ever expected 6 months etc. discounting.)
2. Because the interest changed to 6.2% p.a. in 6 months time, the interest for the second six months will be at the rate of 6.2% p.a..
3. For each part of a question you are normally presented with either the spreadsheet or the word processor for your answer. Most like for a swap you would be presented with the spreadsheet.
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