Basis point value
This is change in value of security due to 1 basis point change in Market Yield. Higher the
BPV higher will be the risk. Example
Face Value of Bond = 100/- Bond maturity = 5 years
Coupon Rate = 6%
Market price of Rs. 92/- gives yield of 8%
With fall in yield from 8% to 7.95%, market price rises to Rs. 92.10
Difference in Market price = 0.10
Difference Yield = 0.05%
BPV = Diff in Market price/Difference in Yield
BPV = 0.10/0.05 = 2 paisa per Rs. 100 i.e. 2 basis points per Rs. 100/-
If Face value of the Bond is 1.00 crore, BPV of the bond is Rs. 2000/- Now, if the yield on Bond declines by 8 bps, then it will result into profit of Rs. 16000/-
(8x2000). BPV declines as maturity reaches. It will become zero on the date of maturity.
This is change in value of security due to 1 basis point change in Market Yield. Higher the
BPV higher will be the risk. Example
Face Value of Bond = 100/- Bond maturity = 5 years
Coupon Rate = 6%
Market price of Rs. 92/- gives yield of 8%
With fall in yield from 8% to 7.95%, market price rises to Rs. 92.10
Difference in Market price = 0.10
Difference Yield = 0.05%
BPV = Diff in Market price/Difference in Yield
BPV = 0.10/0.05 = 2 paisa per Rs. 100 i.e. 2 basis points per Rs. 100/-
If Face value of the Bond is 1.00 crore, BPV of the bond is Rs. 2000/- Now, if the yield on Bond declines by 8 bps, then it will result into profit of Rs. 16000/-
(8x2000). BPV declines as maturity reaches. It will become zero on the date of maturity.
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