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Why do bonds with higher duration have higher price volatility when interest rates change?

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Why do bonds with higher duration have higher price volatility when interest rates change?
posted Aug 1, 2017 by Naveen Kumar

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1 Answer

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Duration, in strict mathematical terms, measures how sensitive is a bond's price is to a unit change in interest rates. So there you have it. If a bond is higher duration, it's price will change more given a change in interest rates, compared to a bond whos duration is less. Since volatility measures exactly this, that is how much a bond's price actually varies, higher duration bonds have higher volatility.

answer Aug 5, 2017 by Debolina Charaborthy
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