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CFA Level I · CFA Level I Exam · Interest Rate Risk and Return

A bond has a full price of 102.00 per 100 par value and a modified duration of 4.50. The price value of a basis point per 100 par value is closest to:

The PVBP is about 0.0459 per 100 par value. It is found by multiplying the modified duration of 4.50 by the full price of 102.00 and by 0.0001. Using par of 100 instead of the full price would understate it at 0.0450.

  1. A0.0450
  2. B0.0459Correct
  3. C0.0510

Explanation

PVBP is approximately modified duration × full price × 0.0001 = 4.50 × 102.00 × 0.0001 = 0.0459. The option 0.0450 wrongly uses par of 100 instead of the full price of 102. The option 0.0510 uses a wrong multiplication.

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