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

Q. What is the rationale of the double-play strategy? Hedge Fund enters agreement to sell HK$ in six month's. At expiration the Hedge Fund requires to buy spot HKD and deliver

Determine the Types of users Investors -look at the risk of their investment, future growth and profitability. Managers / employees-have access to more information and will want

Matching or Accrual   The accrual concept makes a distinction among the receipt of cash and the right to receive it, and the payment of cash and legal obligation to pay it.

Purpose of research: The aims of this research are to examine the effectiveness of speculation on efficiency of Petrochemical sector in Saudi Arabia financial market"TADAWUL".

You deposit $500 today in a savings account that pays 3.5% interest, compounded annually. How much will your account be worth at the end of 25 years?

Q. Define a currency futures contract? A currency futures contract is a standardised contract for the buying or else selling of a specified quantity of currency. It is traded o

Emerging market bonds are the bonds offered by less developed countries. The government normally issues them. These exclude borrowings from gove

what are the key stages in capital investment decision-making process and the role of investment appraisal in this process?

Explain Composite Currency Bond Composite currency bonds are denominated in a currency basket, like SDRs or ECUs, in place of a single currency.They are often known as currency