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
A revenue bond is a special type of municipal bond distinguished by its guarantee of repayment from revenues generated by a specifie

what is the relevance of virements to public sector accounting

Portfolio Classification of Mutual Funds Mutual Funds differ with reference to the type of instruments in which the money has been invested as per the requirements of the inves

You are required to compute the value of both the firms using Net Income approach.

Q. Determinants of Working Capital? Determinants of Working Capital: - The working capital necessity is determined by a large number of factors but generally the following fa

State the impact on profitability of the company Everything you do has an impact on profitability of the company(including drinking ten cups of coffee in a day!). So if you wan

What are the Market conditions of cost of capital Security may not be readily marketable when investor wants to sell; or even if a continuous demand for security does exist, p

Which is lower for a given company:  the cost of debt or the cost of equity?  Explain: Ignore taxes in your answer . The cost of debt is all the time less as compared to the cost

Suppose you are a euro-based investor who simply sold Microsoft shares which you had bought six months ago. You had invested 10,000 euros to buy Microsoft shares for $120 each shar

Significance of Secondary Markets: High liquidity and constant demand in the market need a diversified investor base with different preferences of demand, maturity and risk. Ap