Approximate % change in bond price

Approximate % change in bond price = (-) (duration)(dy)

Duration tends to:
· underestimate the increase in price that occurs with a drecrease in yield; overestimate the decrease in price that comes with an increse in yield.
· The difference is due to the curvature of the actual price path.
· The larger the change in yield, the larger the error.
· For small changes, estimated and actual price changes are equal or very close.