CFA CFA Level 1 PVBP

# PVBP

• This topic has 3 replies, 3 voices, and was last updated Oct-238:49 am by pcunniff.
• Author
Posts
• pcunniff
Participant
• CFA Level 1
7

The price value of a basis point (PVBP) for a 7-year, 10% semiannual pay bond with a par value of \$1,000 and yield of 6% is closest to:

A)

\$0.64.

B)

\$0.92.

C)

\$0.28.

Explanation

PVBP = initial price â€“ price if yield changed by 1 bps.

Initial price:

FV = 1000 PMT = 50 N = 14 I/Y = 3% CPT PV = 1225.92

FV = 1000 PMT 50 N 14 I/Y = 3.005 CPT PV = 1225.28

PVBP = 1,225.92 â€“ 1,225.28 = 0.64

My question is – how are you getting 3.005 as a 1bp increase? Shouldnt it be 3.001?

• hairyfairy
Participant
• Undecided
3

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%.

• pcunniff
Participant
• CFA Level 1
1

thanks!

• crismurray
Participant
• CFA Level 1
0

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.