What will be the actual percentage capital loss

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A 12-year maturity zero-coupon bond selling at a yield to maturity of 7% (effective annual yield) has convexity of 151.5 and modified duration of 11.06 years.

A 30-year maturity 7% coupon bond making annual coupon payments also selling at a yield to maturity of 7% has nearly identical duration-11.04 years-but considerably higher convexity of 234.6.

a. Suppose the yield to maturity on both bonds increases to 8%. What will be the actual percentage capital loss/gain on each bond? What percentage capital loss/gain would be predicted by the duration-with-convexity rule? (Input all amounts as positive values. Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "%" sign in your response.)

b. Suppose the yield to maturity on both bonds decreases to 6%. What will be the actual percentage capital loss/gain on each bond? What percentage capital loss/gain would be predicted by the duration-with-convexity rule? (Input all amounts as positive values. Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "%" sign in your response.)

Reference no: EM131912944

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