


The price value of a basis point (PVBP) for a 7year, 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?
Comments
You'll have to account that you're calculating in semiannual periods.
So 1 bps = 6% becomes 6.01%, and when counting semiannually, I/Y = 3% becomes 3.005%.
thanks!