Question

A semi-annual coupon bond has MacD of 25.9 years, yield-to-maturity of 4.9%, and price of $1157.14. What is its DV01? Answer in dollars, rounded to three decimal places.

Answer 1

DV01 is the dollar value change in price (value) of a fixed income instrument, such as a bond, in response to a change of one basis point in the yield of the instrument. A basis point is one hundredth of one percent, i.e., one percent of one percent. The yield referred to above is the yield-to-maturity (YTM), the interest rate at which the present value of cash receipts (coupon and principal payments) equals the current price, assuming the instrument is held to maturity. DV01 is thus a measure of the sensitivity of the value of a bond in response to changes in the interest rate. DV01 is also referred to as Basis Point Value (BPV) and, depending where you are, as dollar duration or euro duration.

Calculating PV of bond

PVIF @ 4.9% semi annual compounding for MacD of 25.9 years will be $472.30 .

DV01 for 1% = $472.30/100 = $4.7230

for 1 basis point = $4.7230/100= $0.04723