# Present Value of Basis Point

This question seems rather easy, however, when I calculated the new price after a change in the yield of one basis point I used 6.0001% and got 3.00005% (6.001/2) as the semi annual rate, but didn’t yield one of the answers in the multiple choice. According to the solutions - they used 3.005% as the semiannual rate, but wouldn’t this indicate a 100 basis point change in the annual yield? Is a basis point not 1/100th of a %? I appreciate any feedback if anyone else has came across this question or know where I went wrong. The price value of a basis point (PVBP) for a 7-year, 10% semiannual pay bond with a par value of \$1,000 and yield of 6% is closest to: A) \$0.64. B) \$0.92. C) \$0.28. Your answer: C was incorrect. The correct answer was A) \$0.64. 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.

Never mind. I was really burnt out and didn’t realize that the interest rate value input in my calculator was a expresssed as a percent and not a decimal. I really need a break!

get some rest buddy!