CFA CFA Level 1 PVBP

PVBP

  • This topic has 3 replies, 3 voices, and was last updated Oct-238:49 am by pcunniff.
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    • Avatar of hairyfairyhairyfairy
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        You’ll have to account that you’re calculating in semi-annual periods.

        So 1 bps = 6% becomes 6.01%, and when counting semi-annually, I/Y = 3% becomes 3.005%.

      • Avatar of pcunniffpcunniff
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          thanks!

        • Avatar of crismurraycrismurray
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            You are correct. The calculation provided in the explanation is incorrect, and it should indeed be 3.001 as a 1 basis point (0.01%) increase in yield. Let’s recalculate the PVBP using the correct values according to uno online guides:

            PVBP = initial price – price if yield changed by 1 bps

            Initial price:
            FV = $1,000
            PMT = $50 (semiannual coupon payment)
            N = 14 (number of periods)
            I/Y = 3% (yield)
            CPT PV = $1,225.92

            Price if yield changed by 1 bps:
            FV = $1,000
            PMT = $50
            N = 14
            I/Y = 3.001% (yield increased by 1 bps)
            CPT PV = $1,225.28

            PVBP = $1,225.92 – $1,225.28 = $0.64

            Therefore, the correct PVBP for the bond is closest to $0.64.

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