FRM Part I · FRM Exam Part I · Applying Duration, Convexity, and DV01
A bond with face value $20,000,000 is quoted at a price of 104.20 per 100 face when its yield is 3.00%. When the yield rises to 3.01%, the price falls to 104.12 per 100 face. What is the approximate DV01 of the position?
The DV01 is about $16,000. A one basis point rise in yield cuts the price by 0.08 per 100 of face value, and applying that to $20,000,000 of face value gives 0.0008 × 20,000,000 = $16,000.
- A$16,000Correct
- B$160,000
- C$1,600
- D$32,000
Explanation
The price change per 100 face for one basis point is 104.20 − 104.12 = 0.08. Scaling to the face value: 0.08/100 × 20,000,000 = $16,000. The $160,000 option treats the move as 10 bp, $1,600 shifts the decimal the other way, and $32,000 doubles the price change.
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