CFA CFA Level 1 PVBP

PVBP

  • This topic has 2 replies, 2 voices, and was last updated Nov-20 by pcunniff.
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  • pcunniff
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    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 – 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 – 1,225.28 = 0.64

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

    hairyfairy
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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%.

    pcunniff
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    thanks!

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