Graphical depiction using duration to estimate price changes, Financial Management

Assignment Help:

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*. 


Related Discussions:- Graphical depiction using duration to estimate price changes

What are the ifrs 8 operating segments, What are the IFRS 8 operating segme...

What are the IFRS 8 operating segments IASB issued IFRS 8 operating segments in November 2006 (which replaced IAS 14). This continues IASB's work in its joint short-term conver

Show objections against profit maximization, Q. Show objections against pro...

Q. Show objections against profit maximization? 1) Profit cannot be ascertained well in advance to express the. Probability of return as future is Uncertain. It is not at all p

Borrowing funds via repurchase agreements, Repurchase agreement is a ...

Repurchase agreement is a contract wherein the seller of a security agrees to buy back the same security from the purchaser at a specified price and time. It is also

I need urgent help in Financial Managment, How to get cost differential whe...

How to get cost differential when 100% done by a single party only.

Expansion financing, The securing of the working capital needed for the sup...

The securing of the working capital needed for the support of raises in accounts receivable and inventory related with an organizations initial expansion time.

Describe market value weights, Q. Describe Market Value Weights? Market...

Q. Describe Market Value Weights? Market Value Weights: - As per market worth scheme of weighting the weights to dissimilar sources of finance are assigned on the basis of thei

Define the general principles of the city code, Define the General princi...

Define the General principles of the city code General principles of the city code Information available to all shareholders and shoul

Financial management and production department, The production department i...

The production department in any firm is concerned with provision of production facilities, production cycle, skilled and unskilled labor, storage of finished goods, capacity utili

Expansion financing, The securing of the working capital needed for the sup...

The securing of the working capital needed for the support of raises in accounts receivable and inventory related with an organizations initial expansion time.

Profit & loss account, waht are the basic functions of profit & loss accoun...

waht are the basic functions of profit & loss account

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