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

Case study, what are the assumptions of MM(Modigliani Miller) approach

what are the assumptions of MM(Modigliani Miller) approach

Estimation of working capital, Q. Estimation of Working Capital? A firm...

Q. Estimation of Working Capital? A firm must estimate in advance as to how much net working capital will be required for the smooth operations of the business. Only then, it c

Types of traders in future and option markets, Types of Traders in Future a...

Types of Traders in Future and Option Markets: Hedgers Hedgers use the futures and options market principally for risk management purposes because of their exposure to pri

Assembling the divestiture team, Assembling the Divestiture Team: Dives...

Assembling the Divestiture Team: Divestment of a business requires a team of functional experts under the direction of an experienced project manager. The first and foremost ac

Risk and advantages associated with company locations, What are some of the...

What are some of the primary advantages when a corporation has operations in countries other than its home country?  What are some of the risks? Foreign operations may decrease

Capital budgeting model, Develop a scenario for the future growth of the fi...

Develop a scenario for the future growth of the firm e.g. through using a SWOT analysis to identify an appropriate outcome (this will be covered in lectures) • If it is to grow

Assessing creditworthiness of an issuer of bond, Following are the areas an...

Following are the areas an analyst should consider while assessing the creditworthiness of an issuer. 1. Security Limitations: The bond indenture shoul

Illustrate the nature of financial management, Q. Illustrate the Nature of ...

Q. Illustrate the Nature of Financial Management? Less Descriptive as well as More Analytical: - Financial management is less descriptive and more analytical. Because of the

Evaluate the total expected present value of benefits, Question: Susan ...

Question: Susan started her current job at age 30, with the normal retirement age at 60. The remuneration package of her employment includes the following benefits on top of he

zero salvage value, Big Joe's is changing a piece of equipment.  The equip...

Big Joe's is changing a piece of equipment.  The equipment will cost $5,000 and has a 5 year life.  The equipment can be leased for annual payment of $1,295 paid at the starting of

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