Baran

6、For a 20-year, $1,000 par value, 6 percent coupon T-bond yielding 5 percent, the dollar value of a basis point (DV01) and associated percentage price change (PPC) are closest to:

A) $1.37 and 0.12%.
 
B) $0.14 and 0.01%.
 
C) $0.57 and 0.06%.
 
D) $2.45 and 0.20%.

Baran

The correct answer is D

 

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

Initial price:                                 Price with change:
 
FV = 1000                                   FV = 1000
 
PMT = 50                                    PMT = 50
 
N = 14                                        N = 14
 
I/Y = 3%                                     I/Y = 3.005
 
CPT PV = 1225.92                  CPT PV = 1225.28
 

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

Baran

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

A) $0.44.
 
B) $0.82.
 
C) $0.63.
 
D) $0.80.
 

Baran

The correct answer is B

 

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

Initial price:                                  Price with change:
 
FV = 1000                                    FV = 1000
 
PMT = 80                                     PMT = 80
 
N = 18                                          N = 18
 
I/Y = 9%                                       I/Y = 9.01
 
CPT PV = 912.44375               CPT PV = 911.6271
 

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

Baran

4、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) increase by $0.75.
 
B) increase or decrease by $0.75.
 
C) decline by $0.75.
 
D) is less volatile than a bond with a PBVP of $0.50.

Baran

The correct answer is A 

The price value of a basis point is the price given a 1 basis point change in the discount rate.
N = 20; PMT = 35; FV = 1,000; I/Y = 7.01/2 = 3.505; CPT → PV = 999.29
$1,000 – $999.29 = $0.71.

Baran

2、The price value of a basis point (PVBP) for a 7-year, 10 percent semiannual pay bond with a par value of $1,000 and yield of 6 percent is closest to:

A) $0.28.
 
B) $0.92.
 
C) $0.00.
 
D) $0.64.