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KIC000053 - i i l 1“” l‘ h ‘ I‘:O.ov‘ ‘ ‘61...

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Unformatted text preview: i i l 1“” l‘ h. ‘ I‘:O.ov‘ ‘ ‘61:! 1‘2_ -, ‘ this Price Volatility Characteristics Option Free Bonds 1) Holding maturity and initial yield constant, the lower the coupon the greater the price volatiiity - zero coupon has the most volatility for a change in the yield. One cash flow at end. 2) Holding coupon and initial yield constant, the longer the term to maturity the greater the price volatility Risky Bonds - If we are talking about risky bonds we can have a different yield for the same coupon and term to maturity. ' Holding coupon and term to maturity constant, the higherthe initial yield level (yield spread) the less sensitive to small changes in yield. - This has some implications about how sensitive prices are relative to risk premia related to default ...
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