What will be the actual percentage capital loss on each bond

Assignment Help Financial Management

Reference no: EM131543358

A 13.40-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield) has convexity of 165.4 and modified duration of 12.41 years. A 40-year maturity 6% coupon bond making annual coupon payments also selling at a yield to maturity of 8% has nearly identical modified duration—-12.30 years—-but considerably higher convexity of 272.9. a. Suppose the yield to maturity on both bonds increases to 9%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Zero-Coupon Bond Coupon Bond Actual loss % % Predicted loss % % b. Suppose the yield to maturity on both bonds decreases to 7%. What will be the actual percentage capital gain on each bond? What percentage capital gain would be predicted by the duration-with-convexity rule? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Zero-Coupon Bond Coupon Bond Actual gain % % Predicted gain %

Reference no: EM131543358

Questions Cloud

Value of the bond and that of your tuition obligation : What happens to your net position, that is, to the difference between the value of the bond and that of your tuition obligation?

What would the one-year maturity futures price : What would the one-year maturity futures price be, if the T-bill rate is less than the dividend yield, for example, 2.0%?

Futures contract with a one-year maturity be selling for : What should a futures contract with a one-year maturity be selling for?

Find the duration of a bond with settlement date : Find the duration of a bond with settlement date June 16, 2016, and maturity date December 25, 2025.

What will be the actual percentage capital loss on each bond : What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule?

Find convexity of a seven-year maturity : Find the convexity of a seven-year maturity, 5.5% coupon bond selling at a yield to maturity of 9.1%. The bond pays its coupons annually.

What must be the face value of the two zeros to fund plan : You manage a pension fund that will provide retired workers with lifetime annuities. What must be the face value of the two zeros to fund the plan?

Rank order change if the return for each class : How would this rank order change if the return for each class [i.e., the E(r)] were each reduced by a 3% inflation factor?

How much of each bond will you hold in your portfolio : How much of each bond will you hold in your portfolio?How will these fractions change next year if target duration is now nine years?

User Account

All Pages