Graphical depiction using duration to estimate price changes, Financial Management

The price volatility properties of bonds with the help of the graph of the price/yield relationship. Let us now, with the help of a graph, illustrate how duration estimates the percentage price changes.

Figure 1: Price/Yield Relationship for an Option-free Bond with a Tangent Line

1906_option free bond.png

The price/yield relationship curve for an option-free bond has a convex shape; this is reflected in Figure 9. In the chart we can see a tangent line touching the curve at point z where price is equal to p* and yield is equal to y*. In the new price, the yield changes is estimated using the tangent line. The distance between the horizontal axis and the tangent line represents the price approximated by using duration starting with the initial yield y*. 

Posted Date: 9/10/2012 5:13:07 AM | Location : United States







Related Discussions:- Graphical depiction using duration to estimate price changes, Assignment Help, Ask Question on Graphical depiction using duration to estimate price changes, Get Answer, Expert's Help, Graphical depiction using duration to estimate price changes Discussions

Write discussion on Graphical depiction using duration to estimate price changes
Your posts are moderated
Related Questions
Explain the term - Timing of Benefits A more significant technical objection to profit maximisation, as a guide to financial decision making, is that it ignores the differen

Operating segments An operating segment is a component of an organisation It engages in business activities from that it can earn revenues and incur expenses(this also c

Discuss the three main trends which have prevailed in international business throughout the last two decades. The 1980s brought a fast integration of financial markets and inter

What are the primary requirements for a successful JIT inventory control system? For a JIT system to be victorious the supplier must be willing and able to deliver materials im

A technique for knowing a company's worth that is based on earnings and book value. It is also known as the residual income model, it seems at whether management's decisions cause

Question 1 State the key functions of the financial market. Question 2 Define "Bill of exchange". What are its features? Give different types of cheques. Question 3

Compounding or Future Value Concept: - Under this process of compounding the future worth of all cash inflows at the end of the time horizon at a particular rate of interest are fo

The buy down loan is similar to the PAM; however, it is the seller of the property and not the buyer/borrower who places cash in a segregated account so that additional

Can you help me out on the Time value of money????? I need urgent help on this topic...

Day count convention is a system used to determine the number of days between two coupon dates. It is important in calculating accrued interest and present value