It should be multiplied by 0.01% or equivalently 0.0001.
This is the best explanation.
Work it backwards. If we all agree that :
PVBP = MV * MD * 0.0001
which is the change for 1 BP, then the change for 1% (i.e 100 BP) should be
MV * MD * 0.0001 * 100 = MV * MD * 0.01
I got an e-mail from CFA Institute saying that it’s been escalated to the Education department.
I’ll keep y’all posted.
Guys, there is a good video from Mark Meldrum on this topic. Its purely semantics. Agreed that CFAI has not been consistent…
All you need to do is figure out (from given PVBP) on what are they basing ths off. i…e per 100 par value or something else.
As an eg. on Page 177/Reading 23 (BB eg)- they have given you that PVBP is per million.
Even if they would not have told you this, but just given Duration as 19.72, we can still figure it out (see below).
Step 1:
PVBP (per 100 par value) = 100 * 19.72/10,000 = 0.1972 (this is not provided in question, so move to next step)
Step 2:
_PVBP (per 1 million par value) = 0.1972 * (1,000,000/100) = 1972 (Given), and we can confirm that PVBP given here is per million _ (which has been provided in question to make it simpler)
Bottomline, there is no “standard”, on whether PVBP is divided by “100” or “10,000”. It DEPENDS On question.
Try the eg. on page 139 as an exercise!
Respectfully, BPV is always divided by 10,000 or multiplied by 0.0001. By definition they are finding the value of one basis point. In your examples you’re correct, you adjust those based on the “per 100 par”/“per 1,000,000 par” however that doesnt take away from the fact that the BPV is always going to be multiplied by 0.0001. In your first example, you are calculating BPV and multiplying it by 100 par; in the second example you are already given the BPV of the position but now you’re adjusting it for per 1,000,000. PVBP of a position will always be multiplied by 0.0001, I think we can agree. What we’re trying to understand is if money duration is *0.01.
I hope CFAI won’t replace any question relating to BPV or duration in the real exam because these questions are quite easy to solve.
As for Money Duration its typically per 100 (From CFAI reading), but again watch out on how they use these on questions.
Broadly speaking everybody agrees with 10,000 division theory for PVBP, but just showed you above how PVBP is used “differently” (Still correct). If we would have blindly divided everything by 10,000 in that question (since its PVBP), one would be in trouble!
Same logic applies for Money/Dollar duration - it depends on notation*
I finally got a reply from CFA Institute.
Here it is in all its glory:
Dear Bill,
Thank you for your inquiry regarding the CFA Program curriculum. Money duration can be stated per 100 of par value or in terms of the bond’s actual position size in the portfolio. I hope this is helpful.
Kind regards,
CFA Institute
Make of this what you will.
So, the two definitions are both accepted (if I understand correctly what they mean:-| ).
Thank you Magician.