Interest Rate Sensitivity
What is ‘Interest Rate Sensitivity’
Interest rate sensitivity is a measure of how much the price of a fixed-income asset will fluctuate as a result of changes in the interest rate environment. Securities that are more sensitive have greater price fluctuations than those with less sensitivity. This type of sensitivity must be taken into account when selecting a bond or other fixed-income instrument the investor may sell in the secondary market.
BREAKING DOWN ‘Interest Rate Sensitivity’
Generally, the longer the maturity of the asset, the more sensitive the asset to changes in interest rates. Changes in interest rates are watched closely by bond and fixed-income traders, as the resulting price fluctuations affect the overall yield of the securities. Investors who understand the concept of duration can immunize their fixed-income portfolios to changes in short-term interest rates.
Inverse Correlation between Fixed Income and Rates
Fixed-income securities and interest rates are inversely correlated. Therefore, as interest rates rise, prices of fixed-income securities tend to fall. One way to determine how interest rates affect a fixed-income security’s portfolio is to determine the duration. The higher a bond or bond fund’s duration, the more sensitive the bond or bond fund to changes in interest rates. The duration of fixed-income securities gives investors an idea of the sensitivity to potential interest rate changes. Duration is a good measure of interest rate sensitivity because the calculation includes multiple bond characteristics, such as coupon payments and maturity.
Types of Duration Measurements
There are four widely used duration measurements to determine a fixed-income security’s interest rate sensitivity: the Macaulay duration, modified duration, effective duration and key rate duration. To calculate the Macaulay duration, the time to maturity, number of cash flows, required yield, cash flow payment, par value and bond price must be known. The modified duration is a modified calculation of the Macaulay duration. It determines how much the duration would change for each percentage point change in the yield. The effective duration is used to calculate the duration of bonds with embedded options. It determines the approximate price decline for a bond if interest rates rise instantaneously by 1%. The key rate duration determines a fixed-income security’s or fixed-income portfolio’s duration at a specific maturity on the yield curve.
One widely used measure to determine the interest rate sensitivity is the effective duration. For example, assume a bond fund holds 100 bonds with an average duration of nine years and an average effective duration of 11 years. Therefore, if interest rates rise instantaneously by 1%, the bond fund is expected to lose 11% based on its effective duration.
Effective Communication 101
Lesson 1: Recognizing and Understanding Communication Styles
This lesson will help recognize four of the major communication styles. Each style serves a different purpose, and you will be able to identify those and understand which is the most effective.
Lesson 2: Verbal Communication
This lesson will break down verbal communication into various subcategories. It will help to find key areas for improvement when misunderstandings arise.
Lesson 3: Nonverbal Communication
This lesson will help you learn to use nonverbal cues to better understand others. Likewise, you can hone these skills to be sure you are effectively communicating your ideas.
Lesson 4: Communicating in Writing
This lesson will address the different components of written communication. It will enable individuals to use writing to maximize their ability to communicate for personal and business reasons.
Lesson 5: Cultivating Conversational Skills
This lesson teaches the most important skills required to use conversation as an effective form of communication. Mastering conversational skills makes you more interesting, and more likely to truly experience two-sided communication.
Lesson 6: Group Communication
In this lesson, you will learn more about group dynamics and how to use them to your advantage. Groups have very specific ways of interacting, and anticipating this can be invaluable in making sure the group actually is effective.
Lesson 7: Communications Technology
In this lesson, you will learn more about the technology currently available to make communication faster and easier. You will also learn what kinds of repercussions this access to instant communication has on business and personal relationships.
Lesson 8: Barriers to Communication
The goal of this lesson is to learn to recognize where there might be breakdowns in communication. By knowing what problems you are facing, you are more prepared to avoid them altogether.
Lesson 9: Cultural Aspects of Communication
In this lesson, you will learn about the field of cross-cultural communication. You will discover what types of barriers to expect, and what you can do to overcome them.
Lesson 10: Disagreements and Conflicts
In this lesson, you will learn how to handle disagreements before and after they occur.
Lesson 11: Negotiation
In this lesson, you will learn the basics of negotiation. It will also pull together some of the skills you have learned throughout this course and show you how to utilize them to reach a specific goal.
Lesson 12: Constructive Criticism
In this lesson, you will learn how to offer and receive constructive criticism. You will also learn the dynamics of the critical relationship.
Additional Course Information
- Document Your Lifelong Learning Achievements
- Earn an Official Certificate Documenting Course Hours and CEUs
- Verify Your Certificate with a Unique Serial Number Online
- View and Share Your Certificate Online or Download/Print as PDF
- Display Your Certificate on Your Resume and Promote Your Achievements Using Social Media
Course Title: Effective Communication 101
Course Number: 7550121
By successfully completing this course, students will be able to:
- Recognize and describe various communication styles.
- Define verbal communication.
- Define nonverbal communication.
- Demonstrate proper techniques when communicating in writing.
- Demonstrate techniques for improving conversational skills.
- Demonstrate techniques for improving group communication.
- Describe techniques for improving communications with technology.
- Define barriers to communication.
- Compare and contrast cultural aspects of communication.
- Describe communication strategies to resolve disagreements and conflicts.
- Describe negotiation strategies.
- Describe how to receive and deliver constructive criticism, and
- Demonstrate mastery of lesson content at levels of 70% or higher.
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