FRM-FMP

anbu.edu
Finance Junkie
Posts: 205
Joined: Mon Feb 04, 2013 3:35 pm

FRM-FMP

Postby anbu.edu » Fri Apr 26, 2013 3:46 pm

or 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) $0.14 and 0.01%.
B) $0.57 and 0.06%.
C) $2.45 and 0.20%.
D) $1.37 and 0.12%.
View Answer and Explanation
N=20×2; I/Y=5/2; PMT=60/2; FV=1000; CPT→PV=1,125.51=V0
N=20×2; I/Y=4.99/2; PMT=60/2; FV=1000; CPT→PV=1,126.88=V-
DV01=1,126.88-1,125.51=$1.37. PPC=DV01/V0=1.37/1,125.51=0.0012.

Source Schweser
My questions is why i/y=4.99- why cant in bt 5.01

vnraghuveer
Good Student
Posts: 20
Joined: Mon Apr 08, 2013 1:36 pm

FRM-FMP

Postby vnraghuveer » Tue Apr 30, 2013 2:54 pm

Hi anbu
Both are one and the same. For small changes (1 basis point in this case), the bond price changes proportional to the change in the yield (Remember the duration effect?). So if it were 5.01, the bond price would have decreased by 1.37 approximately.


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