Approximating the percentage price change using duration, Financial Management

Let us express the process of calculating approximate percentage price change for a given change in yield and a given duration using the following formula:

         Approximate percentage price change = - duration × Δy ×100                      ...Eq. (2)

As an inverse relationship exists between the price change and yield change, duration is preceded by a minus sign.

For example, let us take a 20-year bond with 8.5% coupon rate, currently trading at Rs.115.89 whose duration is 10.22. The approximate percentage price change for a 20 basis point increase in yield (i.e., Δy =  +0.002) is

         Approximate percentage price change = -10.22 × (+0.002) ×100 = -2.044%

Posted Date: 9/10/2012 5:11:13 AM | Location : United States







Related Discussions:- Approximating the percentage price change using duration, Assignment Help, Ask Question on Approximating the percentage price change using duration, Get Answer, Expert's Help, Approximating the percentage price change using duration Discussions

Write discussion on Approximating the percentage price change using duration
Your posts are moderated
Related Questions
Q. Display the position explicitly Example: I borrow 7800000 HKD at time t = t 0 at an interest rate r t0 . After one year I pay back 7800000(1 + rt o ). At

Medium-term notes are debt instruments that can be offered continuously to an investor. An agency of the issuer offers these; and these are avai

Q. Explain demerits of accept-reject criteria? Demerits of ARR:- (i) It utilizes accounting income rather than cash flows: - The principal short coming of ARR schema is th

Illustration Consider a Rs.1,000 par value bond whose current market price is Rs.850. The bond carries a coupon rate of 8% and has a maturity period of 9 years. Wha

Bonds pay interest periodically at a pre-specified rate of interest. The annual rate at which this interest is paid is known as the coupon rate or simply the coup

CHARACTERISTICS AND EFFECTS OF SAPS Although SAPs differ somewhat from country to country, they typically have the following features: Reduction in Trade Barriers SAP’s r

Financial Control: - The establishment as well as use of financial control devices is an important function of financial management. These devices comprise: Budgetary Contro

a) Define monetary policy, and discuss the operation of monetary policy in the United States post-GFC.

Q. What is Installment Credit? This is another method by which the assets are purchased and the possession of goods is taken immediately but the payment is made in installments

What is Institutional Finance A nation's economic structure comprise a number offinancial institutions, like banks, pension funds, insurance companies, creditunions. These i