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What is the price value of a basis point for a 5 year 6% treasury bond...

What is the price value of a basis point for a 5 year 6% treasury bond trading at par (assume a part value of 100 and that the bonds pays interest semi annually)?

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Answer #1
N PVF CF PVF x CF PVF x CF x N
1 0.9709 3 2.913 2.913
2 0.9426 3 2.828 5.656
3 0.9151 3 2.745 8.236
4 0.8885 3 2.665 10.662
5 0.8626 3 2.588 12.939
6 0.8375 3 2.512 15.075
7 0.8131 3 2.439 17.075
8 0.7894 3 2.368 18.946
9 0.7664 3 2.299 20.693
10 0.7441 103 76.642 766.417
Sum 100.000 878.611
Mac. Dur. 8.786
Mod. Dur. 8.530
PVBP 0.0853

Price value of a basis point (PVBP) = Modified Duration x Bond Price x 0.01%

= 8.530 x 100 x 0.01% = 0.0853

Modified Duration = Macaulay Duration / (1 + y/m) = 8.786 / (1 + 6%/2) = 8.530

Macualay Duration = Sum of PVF x CF x N / Sum of PVF x CF = 878.611 / 100 = 8.786

where, PVF - Present Value Factor = 1 / (1 + y/m)^N, and y = 6%, m = 2

CF - Cash Flows from the bond, N - Period.

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