@15:17 when slope is higher, risk should be higher considering one unit change along Y axis and corresponding thing along X axis. So risk should be higher at higher yields? Where i got wrong?
Got it! Interest rate risk is inversely proportional to the current yield to maturity of a bond-the higher the yield to maturity, the less the price will change for a given change in interest rates. This makes sense because any change in interest rates will be a smaller percentage of a high YTM than for a smaller YTM.
Duration is higher for lower yields and vice versa. This is because, for example, when a bond’s yield is already high, then changes in interest rates will have less effect on its price than on a bond with a lower yield. Thus, if interest rates increase by 1%, or 100 basis points, then the price of a bond with a yield of 10% will drop less than a bond with a yield of 4%, because 1% is only 1/10th of 10%, but ¼ of 4%IFT support team
great as always..
amazing !!!.... makes leaning so easy...hats off...:D
you are awesome! you have great sense of humour too ;) thanks a lot sir.
GREAT
very organised
good one ! :)
@15:17 when slope is higher, risk should be higher considering one unit change along Y axis and corresponding thing along X axis. So risk should be higher at higher yields? Where i got wrong?
Got it! Interest rate risk is inversely proportional to the current yield to maturity of a bond-the higher the yield to maturity, the less the price will change for a given change in interest rates. This makes sense because any change in interest rates will be a smaller percentage of a high YTM than for a smaller YTM.
Duration is higher for lower yields and vice versa. This is because, for example, when a bond’s yield is already high, then changes in interest rates will have less effect on its price than on a bond with a lower yield. Thus, if interest rates increase by 1%, or 100 basis points, then the price of a bond with a yield of 10% will drop less than a bond with a yield of 4%, because 1% is only 1/10th of 10%, but ¼ of 4%IFT support team
Thanks,
"if you are explaining duration to your boss who is not a smart man use 3rd method" LOL
Where is the Understanding fixed income risk and return video??
You can find all the videos by signing up for the free video package on this link:
ift.world/product/basic-package-lev1-dec/
IFT Support Team