As chief nancial ocer of a TSTR (Too Small 100 To Rescue) Bank, a small neighborhood bank, one of your primary tasks is to manage the interest rate exposure. You are currently trying to convince your board of directors, composed of neighborhood worthies, to measure and manage your bank's interest rate risk by using mathematical relations between xed-income prices and yields.

State a formula that relates changes in xed-income price to interest-rate variability (i.e., changes in yields) using at least one if not two dierent measures of yield sensitivity. Illustrate how bond prices are related to yields on the basis of this formula and a diagram. Is this approach valid why or why not ?