CFA Practice Question

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CFA Practice Question

Miyoung Chen has a 5.00%, 19-year bond that is selling for a price of 34.9412 and is currently yielding 16.00%. The bond has a modified duration of 7.1481. Given this information, what is the Price Value of a Basis Point (PVBP)?

A. $0.0250
B. $0.0165
C. $0.0325
Correct Answer: A

The formula for the Price Value of a Basis Point (PVBP) is equal to: modified duration * (.0001) * 100 * full price = 0.0715% * the initial price of 34.9412

Note: This is also equal to the difference between the initial price and the price with a one basis point change (increase or decrease).
The original price = 34.9412 - new price with a one basis point increase = 34.9163 = $0.0250

User Contributed Comments 5

User Comment
stefdunk how about we just do price times duration times 0.0001?
derektl2 that the way i prefer to look at it too... since duration is the price percentage change due to 100 basis points change in yield
Richie188 1% of the duration x price / 100
johntan1979 Not that it matters but you should be getting a non-rounded answer of $0.024976
tomalot Yeah it doesn't matter dude
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