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
Bond Indenture An indenture builds the formal conditions of a lending relationship between a borrower and a lender. It is a written record, and it outlines most important func

Swap Market: The fall of Bretton Wood system in early 1970s weakened of the pound. It was imperative to stop the downward slide of the pound. In order to control the flow of fo

Roxanne invested $560,000 in a new business 7 years ago. The business was expected to bring in $8,000 each month for the next 26 years (in excess of all costs). The annual cost of

How Compound values can be calculated on anannual basis Compound values can be calculated on anannual basis, or on a half-yearly basis or on a monthly basis or on continuous ba

Q. What is Capital recovery? sometimes one may be interested to find out the annual amount paid in the order to redeem a loan of a specific amount over a specific period togeth

you would like to purchase a new car in 3 years.The current value of the vehicle you would like to purchseis 100000.The manufacturer of the vehicle has advised you,that the cost of

What is the Modigliani-Miller's irrelevance hypothesis in dividend decision making? Critically evaluate its assumption.

Explain the meaning of - Purchase consideration The  type  of  offer  made  to  target  company's  shareholders  would have  a  big  impact on acceptance. Apparently the price

Explain foreign equity ownership restrictions. Why do you think countries entail these restrictions? Several countries restrict the maximum fractional ownership of local organiza

What is risk aversion? If common stockholders are risk averse, how do you explain the fact that they often invest in very risky companies? Risk aversion is the trend to avoid add