Market Value Changes Estimated Using Partial PVBPs

CFA Level III
#1

On page 158 of Book 4, it says

Predicted change = Portfolio par amount × Partial PVBP × (–Curve shift)

Portfolio Par Amount was 60,000 (in thousands), Partial PVBP: 0.0056, and curve shift 18.3.

I calculated 6148 (in thousands) whereas the book shows 61.5 (in thousands). Do we divide by 100 because of the par amount?

Thanks in advance!

Can someone please?

#2

someone please?

#3

WFB.

#4

What does WFB mean? Thanks!

#5

_ W _aiting _ F _or _ B _ooks.

#6

Please Read the FINE PRINT

Dollar duration is a traditional term in the bond literature;the concept applies to portfolios denominated in any currency. A related concept is the price value of a basis point (PVBP), also known as the dollar value of a basis point (DV01). The PVBP is equal to the dollar duration divided by 100.

PVBP = Price Value of a BASIS POINT

1 BASIS POINT - 0.01 %

#7

Yes I understand that part.

What I don’t understand is why we divide by 100 in this case as Partial PVBP is directly given in the chart.

#8

Do you know when you will get your book? Interested to know why we divide by 100

#9

Nope.

Patience, grasshopper.

#10

Books arrove today.

I’ll probably have a chance to research this on Tuesday.

#11

OK: I looked at the table.

My first thought is that the partial PVBP is not 0.0056 but, rather, 0.0056 %.

I e-mailed CFA Institute for a clarification.

I’ll let you know when they reply.

#12

Any update on this ?

It’s difficult to imagine that it’s in percentage as PVBP is the PRICE value of a basis point which should be in dollar.

Thank you

#13

Nothing yet.

#14

This PVBP is somewhat confusing, i have a similar problem if anyone can help.

As per my understanding

Money Duration = Modified duration x Market value of the bond Money Duration = PVBP x 100

Now coming to Reading 23 Example 4 to calculate the MV of the portfolio the curriculum divides the Money Duration by PVBP instead of dividing it by Modified Duration according to the equation (Money Duration = Modified duration x Market value of the bond).

Can anyone please help me out with this Example 4. thanks

#15

Magician is correct.

Pls refer page 68 of CFAI reading 22.

#16

Same confusion here. PVBP is a dollar amount and Portfolio amount also a dollar amount, how can they multiply? Any insights guys? I don’t want to memorize formula without understanding the logic behind. Thanks

#17

I think the confusion comes from the “partial PVBP” which is not clear. We have either partial duration=KRD, or PVBP, but not combination.

if the author was referring to KRD in “partial PVBP” in the example, as key rate curve shift is mentioned on the side, we shall use 0.183 for the calculation. Just my thought.

#18

Reasonable analysis. Could you interpret the predicted change in value formulae as to why curve shift need to divided by 100? (As shown in EOC question), which applies to the table in page 184?

#19

In the EOC question 20, the table quoted the rate in %.

the formula in the answer shows curve shift in bps.

1%=100bps.

#20

Reading 23, question 20:

The formula to predict the market change: multiply partial PVBP x portfolio par amount x ((curve shift in bps so for instance 1%=100 bps)/(100))

I am a bit confused with the answer they give for pro forma portfolio 2. Why would we not select the bullet pro forma portfolio 1? Surely it would benefit from a steepening yield curve and it has the highest PVBP for the 5-year and 10-year bonds? Could anyone help? Thank you