Hello,
I keep making mistakes with money duration and price value of a basis point. I believe it is due to the use of full price in the definitions that is throwing me off. I have 2 questions at the bottom of this post.
Example (money duration):
Calculate the money duration on a coupon date of a $2MM par value bond that has a modified duration of 7.42 and a full price of 101.32, expressed for the whole bond and per $100 of face value.
Answer: 7.42 X $2,000,000 X 1.0132 = $15,035,888. I calculated this correctly because full price is at time of settlement/purchase.
Example (price value of a basis point).
A newly issued, 20-year, 6% annual-pay straight bond is priced at 101.39. Calculate the PVBP for this bond assuming a par value of a $1MM.
PVBP = 0.117 which is the correct answer.
My answer for step 2= 0.117 X $1,000,000 X 101.39 X 0.01
The correct answer for step 2 = 0.117 X $1,000,000 X 0.01
The definition of PVBP is the money change in the full price of a bond when the YTM changes by one basis point.
My questions: does full price apply to money duration? and par value apply to PVBP?
Thank you.