Approximating the percentage price change using duration, Financial Management

Assignment Help:

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%


Related Discussions:- Approximating the percentage price change using duration

Investment consultant , Suppose, you are working as an investment consultan...

Suppose, you are working as an investment consultant in a consultancy firm and most of your clients are habitual investors, who are maintaining their own portfolios comprising of v

How howan acquisition should be implemented, How Howan acquisition should b...

How Howan acquisition should be implemented 1. Directors of the target company must be approached first and a firm offer of a price made on condition that all due diligence wor

Dividend yield method, Dividend yield method As per this method, the co...

Dividend yield method As per this method, the cost of Equity capital is the discount rate that equates the present value of expected future dividends per share with the net pro

Common size and index analysis, sk company had the following balance sheets...

sk company had the following balance sheets and income statements over the last 3 years

Financial bootstrapping, Briefly describe the major differences between a s...

Briefly describe the major differences between a sole proprietorship and a corporation. Under which form would you choose for a business, and why? Describe the meaning of financi

Total revenue change, Write an essay explaining that the quantities of good...

Write an essay explaining that the quantities of goods and services that we can produce are limited by both our available resources and by technology. Assume we want to increase

Show the working capital forecasting techniques, Q. Show the Working Capita...

Q. Show the Working Capital Forecasting Techniques? Working Capital Forecasting Techniques or else Computation Of Working Capital: - A number of processes are used to determine

International monetary system, what is the criteria for a good internationa...

what is the criteria for a good international financial system

Misconceptions about financial manmagement, What are the misconceptions abo...

What are the misconceptions about Financial Management?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd