1
Q
How do we measure bond price volatility?
A
- Price value of a basis point
- yield value of a price change
- duration
2
Q
What is yield value of a price change?
A
Yield value of a price change measures inverse price sensitivity.
Smaller required yield movement implies greater duration and higher volatility.
3
Q
What is duration?
A
Duration measures a bonds price sensitivity to interest rate changes
duration measures interest rate risk, not time
4
Q
Which factors affect duration?
A
Lower coupon → higher duration
* Longer maturity → higher duration
* Lower YTM → higher duration
