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Sensitivity of a Bond with respect to changes in Desired Yield Rate
Interest rate sensitivity is a measure of how much the price of a fixed-income asset will fluctuate as a result of changes in the interest rate environment.
Securities that are more sensitive have greater price fluctuations than those with less sensitivity.
This type of sensitivity must be taken into account when selecting a bond or other fixed-income instrument the investor may sell in the secondary market.
Fixed-income securities and interest rates are inversely correlated. Therefore, as interest rates rise, prices of fixed-income securities tend to fall.
One way to determine how interest rates affect a fixed-income security's portfolio is to determine the duration. The higher a bond or bond fund's duration, the more sensitive the bond or bond fund to changes in interest rates.
The duration of fixed-income securities gives investors an idea of the sensitivity to potential interest rate changes. Duration is a good measure of interest rate sensitivity because the calculation includes multiple bond characteristics, such as coupon payments and maturity.
#Bonds , #Finance , #CAFinal , #FinancialLearning , #CAFinalSFM , #StrategicFinancialManagement , #SFM ,
11 окт 2024
