Actual percentage capital loss on bond

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A 12.75 yr maturity zero-coupon bond selling at a yield to maturity of 8% [effective annual yield] has convexity of 150.3 and modified duration of 11.81 years. A 30-year maturity 6% coupon bond making annual payments also selling at a yield to maturity of 8% has nearly identical modified duration - 11.79 years - but considerably higher convexity of 231.2.

Suppose the yield to maturity increases to 9%.

a. What will be actual percentage capital loss on each bond?

b. What percentage capital loss would be predicted by the duration-w-convexity rule?

Reference no: EM132719441

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