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Hi David

Hope you are well. Appreciate if you could explain below example taken from Qbank. I couldn't understand the relation btwn PVBP and VAR?

Thanks

Imad

The price value of a basis point (PVBP) of a $20 million bond portfolio is $25,000. Interest rate changes over the next one year are summarized below:

A)

$2,500,000.

B)

$2,750,000.

C)

$5,000,000.

D)

$12,500.

The correct answer was C) $5,000,000.

At 5% probability level change in interest rates is 2.00% or higher.Change in Portfolio value for 200 bps change in interest rate = 200*$25,000VAR = $5,000,000.

Hope you are well. Appreciate if you could explain below example taken from Qbank. I couldn't understand the relation btwn PVBP and VAR?

Thanks

Imad

**Question 11 - #29487**The price value of a basis point (PVBP) of a $20 million bond portfolio is $25,000. Interest rate changes over the next one year are summarized below:

*Change in Interest rates*

*Probability*

>+2.50%

1%

+2.00-2.49%

4%

0.00-1.99%

50%

-0.99-0.00%

45%

<-1.00%

5%

**Compute**VAR for the bond portfolio at 95 percent confidence level.A)

$2,500,000.

B)

$2,750,000.

C)

$5,000,000.

D)

$12,500.

The correct answer was C) $5,000,000.

At 5% probability level change in interest rates is 2.00% or higher.Change in Portfolio value for 200 bps change in interest rate = 200*$25,000VAR = $5,000,000.

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