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Archive for February, 2011

Wow! It’s stamp with my photograph

Posted by Prashant Shah on February 26, 2011

Anyone will get delighted just by hearing that his/her photo can be printed on a stamp and the stamp can be used as a normal stamp! Want to know more about that? Lets see hod does it happen.

It is known as ‘Personalised stamp‘, My Stamp is a wonderful way to celebrate special occassions such as engagements, birth of a baby, or to send as greetings to loved ones and friends. You can now have photographs of yourself and your loved ones on a real India Post stamp sheet. Send out greetings on special occasions with a difference with stamps beaming your photograph or just preserve the stamp sheet.

The template on My Stamp would be printed on the six themes:

1. Trains
2. Aeroplanes
3. Wildlife
4. Panchatantra
5. Sun Signs
6. Taj Mahal

Each template is designed on one of the above themes and has 12 personalised stamps perferated on it. One can get their personalised stamps on their favourite photograph on all of the themes mentioned above. As this concept is very popular in foreign but in India was offered for the first time at INDIPEX 2011 at Rs. 150 per sheet. Let’s hope it is available throughout the year at all the GPOs.

Information taken from: www.indipex2011.com


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Modified Duration of Bonds

Posted by Prashant Shah on February 26, 2011

There is an inverse relationship between price and yield. What should be the change in price with a change in yield? It can be answered with the help of duration concept and especially with modified duration. Modified duration is a modified version of the Macaulay model that accounts for changing interest rates. Modified formula shows how much the duration changes for each percentage change in yield. There is an inverse relationship between modified duration and an approximate 1% change in yield. The calculation of the same is as follows:
Where ‘f’ is frequency of payment of coupon


Consider a bond with a YTM of 12% and duration is 5 years. If the interest rate increases by 50 basis points , change in the price of the bond will be..

Modified duration of the bond is 5/1.12 = 4.46 years

Change is price can be calculated as follows:

%ΔPrice = -Dmod ×%Δyield

                  = -4.46 ×0.5 = -2.23%

Hence price will decline by 2.23% for a given change in yield.

As duration is an easy approach to calculate the price change but it also suffers from its own limitations. As we have already understood that for the same change is yield either side, price change is not same but duration assumes that there is a linear movement between price and yield. Hence duration is useful for smaller changes in interest rates but should not be used in isolation when larger changes are predicted. The error caused by duration can be eliminated using the concept of ‘convexity’. Learning convexity is out the scope for the CFP aspirants. So will discuss the same on other time.

I hope you have enjoyed learning bonds.

Thank You.

Prashant V Shah

Posted in Bond Analysis | Tagged: , , , | Leave a Comment »