Reading 67: Introduction to the Measurement of Interest Rate

Session 16: Fixed Income: Analysis and Valuation
Reading 67: Introduction to the Measurement of Interest Rate Risk

LOS j: Calculate the price value of a basis point (PVBP), and explain its relationship to duration.

The price value of a basis point (PVBP) of a bond is $0.75. If the yield on the bond goes up by 1 bps, the price of the bond will:

A)	decline by $0.75.

B)	increase by $0.75.

C)	increase or decrease by $0.75.

Inverse relationships exist between price and yields on bonds. The larger the PVBP, the more volatile the bond’s price.

2^#

发表于 2011-3-30 16:23 | 只看该作者

The price value of a basis point (PVBP) for a 18 year, 8% annual pay bond with a par value of $1,000 and yield of 9% is closest to:

$0.80.

$0.44.

$0.82.

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

PVBP = 912.44375 – 911.6271 = 0.82
PVBP is always the absolute value.

3^#

发表于 2011-3-30 16:23 | 只看该作者

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:

$0.64.

$0.92.

$0.28.

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

PVBP = 1,225.92 – 1,225.28 = 0.64
PVBP is always the absolute value.