Using our same bond with a modified duration of 3.861, assume an instantaneous yield change of 20
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Using our same bond with a modified duration of 3.861, assume an instantaneous yield change of 20 basis points ( 0.0020), from 10 percent to 10.20 percent. The approximate change in price based on Equation 18‐4 would be
Given that the original price of the bond is $1,000, this percentage price change would result in an estimated bond price of $992.28. For very small changes in yield, Equation 18‐4 produces a good approximation.
Equation 18‐4
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The formula you are referring to estimates the change in the price of a bond given a change in yield ...View the full answer
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Related Book For 
Investments Analysis And Management
ISBN: 9781118975589
13th Edition
Authors: Charles P. Jones, Gerald R. Jensen
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