# Tag Info

3

The change of the price $P(y)$ if the yield changes from $y$ to $y+\Delta y$ is $$\frac{P(y+\Delta y) - P(y)}{P(y)} = - D \Delta y + \frac12 C \Delta y^2,$$ where $D$ is the duration and $C$ is convexity. For small $\Delta y$ the square is much smaller. Thus the duration component dominates.

3

DV01 is the dollar variation in a bond's value per unit change in the yield. https://en.wikipedia.org/wiki/Bond_duration IR DV01 is the dollar value change for a 1bp upward parallel shift in interest rates. http://dataforthoughts.blogspot.it/2009/09/economics-of-negative-bond-cds-basis.html

2

As @Alex C mentioned, they are all equivalent. Specifically, 1 and 3 are the exact same thing. (1 is missing an n - unless it's a one year bond). 2 is the intuitively the equivalent of putting a smaller amount of money today in the bank (whatever rf inst. guarantees the $i$ rate of interest) to have same payments as the bond in the future. Since this ...

2

Put it simply, the interest rate depends on the forces of demand and supply of money. When the Fed buy bond, it increases the money supply into the economy. To induce the people to borrow more money bank reduces their own interest rate, otherwise, people won't have any incentives to borrow more. The interest rate is reduce to such level again equilibrium is ...

1

If the bonds yield goes down by $100 \text{bps}$ and the duration is $3$, the bond price will increase by approximately $3\%$. Without any subsequent movement over the next three years, the bond should yield 3.5% p.a. after the yield rate movement. The return during the total holding period of three years would be approximately:  3\% \text{(yield rate ...

1

Duration (of which Macaualy is one type) is only a linear approximation of how the bond value will change with a small change in yield.

1

Your confusion is certainly coming from a distinction between Price and Yield. 1 - You're definitely right in regards to Bond Price as 99 1/8 = 99.125. Likewise 99 1/32 = 99.0313 (assuming 100 PAR). It's worth highlighting on the fact that this convention is only applicable to US bond prices, as far as I am concerned. 2 - By contrast, Bond Yield is the ...

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