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Postby suresh.wadhwani2009 » Sat May 12, 2012 6:04 pm

Pls explain

Sarah a risk manager responsible for the fixed income portfolio of a insurance company. The portfolio contains a 30 yr zero coupon bond issued by the US treasury (STRIPS) with a 5% yield. What is the Bond's DV01?
a. 0.0694
b. 0.0692
c. 0.0665
d. 0.0161

Correct Ans: c

Source: 2010 garp sample paper

Pls explain how we have arrived at the ans. M getting diff one.


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Posts: 13
Joined: Sat Apr 07, 2012 7:43 pm

Re: DV01

Postby bks.gtb » Sat May 12, 2012 10:17 pm

Hi Suresh,

The price of the bond is computed as 22.73 based on the below working:


Duration is 30/(1+5/200) = 58.53 semesters = 29.27 years.

DD = P*Duration = 29.27*22.73 = 665.31

DV01/DVBP = 665.31*0.0001 = 0.0665

Hope it helps!!

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