sudden doubt

CFA Level I Fixed Income
#1

Is there any difference between dollar duration & PVBP??

#2

Yes. Dollar duration = 100 × PVBP.

#3

Thank you sir

#4

You’re welcome.

#5

Price value of a basis point :- It measure the change of a bond value by the change in one basis point. For example 1 basis point is .001,

Dollar duration :- It measures the change in bond value by the % change in interest rate.For example:- If interest rate changes from 8% to 7% then what will be the bond value.

#6

Actually, that’s 10 basis points; 1 basis point is 0.0001.

#7

Sorry for being out of topic. I have this following 2 questions but I don’t want to open a new thread.

  1. Sometimes I see different formulas, for example: ROE = Net Income/Equity or it is the average Equity in the denominator. If they give us figures for 2 years, are we supposed to use the latter (i.e. Net Income/ Avg. Equity) in our calculation?

  2. One more question, what is exactly prior service costs in DBP? :frowning: I cannot get it.

Thanks

#8

Highjacker!

Whenever a ratio combines an income statement (or cash flow statement) value with a balance sheet value, the balance sheet value should be an average. If they give you two years of balance sheets, then use the average. If they give you only one year’s balance sheet, you have to go with that value.

If the plan changes retroactively (e.g., the vesting period changes from 5 years to 4 years, applicable retroactively), the historical effects are prior service costs.

You’re welcome.