Price Value of a Basis Point (PVBP)

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Definition of 'Price Value of a Basis Point (PVBP)'

The price value of a basis point (PVBP) is a measure of the change in the price of a bond or other fixed-income security in response to a change in its yield. It is calculated by multiplying the bond's modified duration by the change in yield.

The PVBP is a useful tool for investors who want to compare the relative value of different bonds. It can also be used to estimate the potential impact of a change in interest rates on the value of a bond portfolio.

The PVBP is calculated using the following formula:

```
PVBP = -Modified Duration * Change in Yield
```

where:

* PVBP is the price value of a basis point
* Modified Duration is a measure of the sensitivity of a bond's price to changes in its yield
* Change in Yield is the change in the bond's yield

The modified duration of a bond is calculated using the following formula:

```
Modified Duration = -[Price Change / Yield Change] / [Price / Yield]
```

where:

* Modified Duration is the modified duration of the bond
* Price Change is the change in the bond's price
* Yield Change is the change in the bond's yield
* Price is the bond's price
* Yield is the bond's yield

The PVBP is a useful tool for investors because it provides a way to compare the relative value of different bonds. It can also be used to estimate the potential impact of a change in interest rates on the value of a bond portfolio.

However, it is important to note that the PVBP is only a rough estimate of the impact of a change in interest rates on the value of a bond. The actual impact will depend on a number of factors, including the bond's maturity, coupon rate, and credit quality.

Nevertheless, the PVBP is a valuable tool for investors who want to understand the relationship between interest rates and bond prices.

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