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MANAGING INTEREST RATE RISK: DURATION GAP AND MARKET VALUE OF EQUITY - page 4 / 39

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Solve for Price:

P -Duration x [y / (1 + y)] x P

Price (value) changes

Longer maturity/duration larger changes in price for a given change in i-rates.

Larger coupon smaller change in price for a given change in i-rates.

Duration …approximate measure of the price elasticity of demand

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