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FRM Part I · FRM Exam Part I · Applying Duration, Convexity, and DV01

A bond is priced at 102.400 per 100 face value at a yield of 3.00% and at 102.350 at a yield of 3.01%. An investor holds 40 million face value of this bond. What is the position's approximate DV01?

The DV01 is about USD 20,000. The price falls 0.05 per 100 face for a one-basis-point rise in yield. The 40 million position equals 400,000 units of 100 face, and 400,000 times 0.05 gives 20,000 dollars per basis point.

  1. AUSD 2,000
  2. BUSD 20,000Correct
  3. CUSD 200,000
  4. DUSD 1,000,000

Explanation

The price change per 100 face for 1 bp is 0.05. The position is 40,000,000/100 = 400,000 units of 100 face. DV01 = 400,000 × 0.05 = USD 20,000. Option A is off by a factor of ten, which comes from a scaling error in the number of units.

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