Calculation of DV01

[patrickkore]

On your Fixed Income 1
Par $1,000. 10 Years, 4% Coupon Semiannual

N=20
PMT=20
FV=1000

Price = 851.23

+ 1 basis point 6.01%

- 1 basis point 5.99%

When I perform the repricing after the basis change I seem not to get the +1 price of 850.55 or the
-1 851.90

Please a I need a baby step by step hand holding? This is a critical concept that I need to master cold!

 

[David Harper CFA FRM]

Patrick,

I'll assume a TI BAII+:

20 N
3 I/Y
20 PMT
1000 FV
CPT PV should give: PV = -851.225
STO 1 (stores in variable 1)

5.99 ÷ 2 = (should give 2.995
I/Y
CPT PV should give -851.90

- (minus)
RCL 1 = (should give about) = -.675

So, $0.68 as the sign doesn't matter: one basis point change translates into about a $0.68 price change

Some thoughts:
1. Did you get the initial price (-851.225)? If not, check calculator settings; e.g., you want END OF PERIOD payments (in arrear)
2. If you did get initial price, on repricing are you inputing the new yield? You will know because the display confirms with 'I/Y= 2.995'
3. Note a KEY TIMESAVER: the five TVM (bond keys) do not reset while you are calculating: to reprice you only need to give a new input (I/Y) and hit CPT PV again

Let me know if this doesn't work....David

 

[patrickkore]

Thanks david, was not dividing the yield by 2. all is fine now