resent Value of the Basis Point (PVBP) analysis Post by Day 3 a 4- to 6-paragrap

Question

resent Value of the Basis Point (PVBP) analysis Post by Day 3 a 4- to 6-paragraph description of the PVBP process, its benefits and challenges. Make sure to include responses to the following specific questions:

1 What are the specific steps involved in the PVBP analysis? Provide at least one simple example.

2 How can the users of PVBP analysis improve it to achieve even better results for its objectives?

Clearly address each of the questions with 2–3 paragraphs. Make sure you use APA style for your response(s) and properly cite any resources you have used.

Explanation / Answer

Answer :-

PVBP stands for present value basis points It is simply a method which helps to calculate the price sensitivity of the bond. This helps us to find out the change in the proce of the bond or we say absolute change In case of case in the yield of the bond by 0.01% or we say it one basis point. So we can easily say that PVBP is the change in the interest rates of the bond due to the change in one basis point.

Steps that are involved in the PVBP is -

First calculate the value of the bond with the given percentage

Then second calculate the value of the bond by increasing the given coupon rate by 0.01%

The calculate the difference between these two,

For example :-

Suppose a bond of face value 10000 and life of 10years and the coupon rate is 6% and discount rate is 6%

then the price of the bond if calculated comes to 10000

and now change the rate by 6% to 6.01%

then the value of the bond comes to 9992.64

then the PVBP is 10000 - 9992.64 = 7.36

the users of PVBP analysis improve it to achieve even better results for its objectives due to simple the reason of the modified opinion.

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