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In chapter 10- Risk and uncertainty, the example related to sensitivity analysis related that the lower the sensitivity rate is there would be higher risk.
Likewise in chapter 11-modified duration was calculated for both examples. example one had 3.94 sensitivity rate and example 2 had 6.52 sensitivity rate. it has been said in the video example 2 is more riskier than example one.
I couldn’t understand please explain.
In Chapter 10 the sensitivity is measuring the change in the variable that would lead to a zero NPV.
In Chapter 11 we are looking at the effect of changes in the interest rate on the market value.
So the two are not comparable.
(Have you watched the free lectures working through these chapters, because using the notes on their own would be a waste of time 🙂 )
Had watched video but had confusion sir as i mixed-up two knowledges, now its clear to me. Thank you sir for info.
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