- CFA Exams
- CFA Level I Exam
- Study Session 15. Fixed Income (2)
- Reading 46. Understanding Fixed-Income Risk and Return
- Subject 5. Money Duration of a Bond and the Price Value of a Basis Point

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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)?

B. $0.0165

C. $0.0325

A. $0.0250

B. $0.0165

C. $0.0325

Correct Answer: A

The original price = 34.9412 - new price with a one basis point increase = 34.9163 = $0.0250

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

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**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 |