This measure is the absolute value of the change in price of a bond for a one basis point change in yield. It is another way to measure interest-rate risk. It does not matter if it is an increase or decrease in rates, because such a small move in rates will be about the same in either direction according to the second property of a bond's price . This is also know as Dollar Value of an 01 (DV01).

Formula 14.18

 PVBP = initial price - price if yield is changed by 1 basis point

Example: Price Value of a Basis Point
Assume that the initial price is 98 and the new price is 97.75. Because of a 1 bps increase in rates the PVBP would be .25 (98 - 97.75).

DV01 is related to duration. It is just a special case of dollar duration. Instead of using a 100 basis point change you are simply using a 1 basis point change.

An example using the Stone & Co. bonds with duration of 5.5

5.5 x 0.0001 x 100 = .055% change

If the price was 98 the dollar price change would be:

.055% x 98 = \$ 0.53

Conclusion
Congratulations! You just finished a section on one of the more complicated topics on your upcoming exam. Ensure you practice all examples presented in this section. We also recommend attempting several different practice exams on Fixed Income with Investopedia's CFA Level 1 Quizzer.

Introduction

Related Articles

### A Common Base for Understanding Changes in Value

A discussion of basis points as well as basis point calculations using Excel.
2. Investing

### Why You Should Avoid Fixating on Bond Duration

Financial advisors and their clients should then focus on a bond fundâ€™s portfolio rather than relying on any single metric like duration.
3. Investing

### Immunization Inoculates Against Interest Rate Risk

Big-money investors can hedge against bond portfolio losses caused by rate fluctuations.
4. Investing

### The Basics Of Bond Duration

Duration tells investors the length of time it will take a bond's cash flows to repay the investor the price he or she paid for the bond. A bond's duration is stated as a number of years and ...

### The Effect of Fed Fund Rate Hikes on Your Bond Portfolio

Learn how an increase in the federal funds rate may impact a bond portfolio. Read about how investors can use the duration of their portfolio to reduce risk.
6. Managing Wealth

### What Determines Your Cost Basis?

The cost basis is the initial price paid in an exchange for a product or service.

### How Rising Rates Impact Bond Mutual Funds

The interest rate increase by the Fed was one of the most widely anticipated in history. Here's what it means for bond mutual funds.
8. Investing

### The Time For Short Duration Bonds Is Now

While the specter of rising interest rates have been haunting the markets for years now, it seems that fear is finally coming true. Given that scenario, the time for bond investors to get short ...
9. Investing

### How Points Relate to Financial Instruments

Points usually refer to the measurement of some change in a financial instrumentâ€™s value.