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

A bond with face value $20,000,000 is priced at 100.84 per 100 of face when its yield is 1 basis point lower than today, and at 100.64 when its yield is 1 basis point higher. Using the central difference, what is the DV01 of the position?

The DV01 is $20,000. The central difference shows a 0.20 price drop per 100 over a 2 basis point span, so 0.10 per basis point, and 0.10% of $20,000,000 face equals $20,000.

  1. A$40,000
  2. B$20,000Correct
  3. C$10,000
  4. D$2,000

Explanation

The price change over the 2 bp span is 100.84 − 100.64 = 0.20 per 100, so per 1 bp it is 0.10 per 100. On $20,000,000 face this is 0.10/100 × 20,000,000 = $20,000. Using 0.20 gives $40,000, which is the DV01 for 2 bp, not 1 bp.

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