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Bond Price Volatility Chapter 4 Price Volatility Characteristics Exhibit 4-3. Instantaneous Percentage Price Change for 6 Hypothetical Bonds Six hypothetical bonds, priced initially to yield 9%: 9% coupon, 5 years to maturity, price = $100.0000 9% coupon, 25 years to maturity, price = 100.0000 6% coupon, 5 years to maturity, price = 88.1309 6% coupon, 25 years to maturity, price = 70.3570 0% coupon, 5 years to maturity, price = 64.3928 0% coupon, 25 years to maturity, price = 11.0710 Yield Ch
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  Bond Price Volatility  Chapter 4  Price Volatility Characteristics Exhibit 4-3. Instantaneous Percentage Price Change for 6 Hypothetical BondsSix hypothetical bonds, priced initially to yield 9%:9% coupon, 5 years to maturity, price = $100.00009% coupon, 25 years to maturity, price = 100.00006% coupon, 5 years to maturity, price = 88.13096% coupon, 25 years to maturity, price = 70.35700% coupon, 5 years to maturity, price = 64.39280% coupon, 25 years to maturity, price = 11.0710Yield ChangeChangePercentage Price Change (coupon/maturity in years)to: in BP9%/5 9%/25 6%/5 6%/25 0%/5 0%/256  –300 12.838.5913.4742.1315.56106.047  –200 8.3223.468.7525.4610.0961.738  –100 4.0610.744.2611.64.9127.18.5  –50 25.152.115.552.4212.728.9  –10 0.410.421.070.482.428.99  –1 0.040.10.040.110.050.249.011  –0.04 –0.10 –0.04 –0.11 –0.05 –0.24 9.110  –0.39 –0.98 –0.41 –1.05 –0.48 –2.36 9.550  –1.95 –4.75 –2.05 –5.09 –2.36 –11.26 10100  –3.86 –9.13 –4.06 –9.76 –4.66 –21.23 11200  –7.54 –16.93 –7.91 –18.03 –9.08 –37.89 12300  –11.04 –23.64 –11.59 –25.08 –13.28 –50.96  Price Volatility of Option-Free Bond  Although the prices of all option-free bonds move in opposite direction from the change in yield required, the % price change is not the same for all bonds.  For very small changes in the yield required, the %price change for a given bond is roughly the same,whether the yield required increases or decreases.  For large changes in the required yield, the % pricechange is not the same for an increase in therequired yield as it is for a decrease in the requiredyield.  For a given large change in basis points, the % price increase is greater than the % price decrease.  Price Volatility   For a given term to maturity and initial yield,the price volatility of a bond is greater, thelower the coupon rate.  For a given coupon rate and initial yield, thelonger the term to maturity, the greater theprice volatility.  The higher the YTM at which a bond trades,the lower the price volatility.
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