Quick Approximation of Price Value of a Basis Point (PVBP)
We know that the Price Value of a Basis Point is the change in the value of a bond due to a 1 basis point change in the interest rates.
You can use a spreadsheet to calculate the PVBP.
However, if you want a quick approximation of the same, you can use your financial calculator, or the PV formula in excel and perform the following steps:
Assume that you want to calculate the PVBP of a $1 million, 10 year bond, with a coupon of 6%.
N = 10
r = 6%
PMT = 60,000
FV = 1,000,000
We will now calculate the PV of the bond, using r as 6% and 6.01%.
The PV at 6% is 1,000,000, and the PV at 6.01% is 999,264.34.
The BPV, therefore, is the difference between the two.
PVBP = 735.66
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- Quick Approximation of Price Value of a Basis Point (PVBP)