 # price value of a basis point question

James wants to translate the estimated price change into a change in value of a position in a particular security. What is the best estimate of the change in value of a \$100,000 principal position in Treasury Notes if yields change by -10 basis points? Also given: pvbp equals \$186.6484 Answers: A) \$1,866.48. B) \$186.65. C) \$18.66. D) \$0.19. I had some trouble with this one for some reason, am hoping someone can walk me through it. I’ll post the correct answer eventually.

Is it choice A : 186.6484 * 10 = 1866.48\$???

Yield goes down, price goes up. One basis point is worth \$186.6484, so 10 basis points will be worth \$1866.484. In other words, the price of the bond will go up by \$1866.484. So, A/ is the correct answer.

Here’s the answer: Your answer: A was incorrect. The change in value is computed as follows: Change in Value T-Note = Price Value of a Basis Point/10 x (-Yield Change) So we have Price Change T-Bond = 186.6484/10 x (-10 bp) = \$186.65 This a schweser qbank question, it’s got me stumped too.

pvbp = Percentage change in Price due to a yield change of 0.01% 186.6484 = Percentage change in Price due to .0001 change in yield pvbp = duration * 0.0001 * bond value 186.6484 = duration * .0001 * 100000 duration = 186.6484 / 10 duration = 18.66484 Therefore for a -10 bp change == change in Price = -duration * -10 = 186.6484

CPK123, Awesome work, thanks.

I still don’t get it. I got the part till duration. Duration is 18.66484. Which implies that if rates go down 1% (100bps), Bond will increase in value by 18.66484%. Thus for a 1% (100 bps) down movement, price will increase by 18.66484% of \$100,000 = \$18,664.84. so if the yield goes down by 10 bps (10th of a percent), why shouldn’t the price increase by \$18,664.84/10 = \$1,866.484