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PVBP

pcunniffpcunniff MilwaukeePosts: 18 Associate

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?

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