Duration takes into account the non-linearity in the relationship between bond price and yield.

Question

Quizplus · Accepted Answer

Duration is essentially the negative of the elasticity of bond price with respect to yield,and so the duration measure can also be used to estimate the effect on the bond price by a change in yield.The level of accuracy decreases with the size of the change in the yield because the relationship between price and yield is not linear,while the elasticity approximation assumes that this relation is linear.

Duration Takes into Account the Non-Linearity in the Relationship Between