James Johnson bought a coupon bond yielding 4.7% for $1,000.

James Johnson bought a coupon bond yielding 4.7% for $1,000.

Assuming that the price drops to $976 when yield increases to 4.71%, what is the PVBP of the bond.
A . $26.
B . $76.
C . $870.
D . $976.

View Answer

Answer: A

Explanation:

The PVBP (Present Value of a Basis Point) can be calculated by taking the change in the bond’s price and dividing it by the change in yield (expressed in basis points). Here, the bond’s price drops from $1,000 to $976 when the yield increases from 4.7% to 4.71%, which is a 1 basis point increase. The change in price is $1,000 – $976 = $24. Therefore, the PVBP is $24 / 1 = $24.