An 11-year maturity zero-coupon bond selling at a yield to maturity of 5.75% (effective annual yleld) has convexity of 171.9 and modified duration of 10.06 years. A 30-year maturity 9.5% coupon bond making annual coupon payments also selling at a yield to maturity of 5.75% has nearly identical duration-10.04 years-but considerably higher convexity of 264.3. a. Suppose the yield to maturity on both bonds Increases to 6.75%. What will be the actual percentage capital loss on each bond? What percentage capital loss 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.) Actual Predicted Zero Coupon Bond % % Coupon Bond % %

An 11-year maturity zero-coupon bond selling at a yield to maturity of 5.75% (effective annual yleld) has convexity of 171.9 and modified duration of 10.06 years. A 30-year maturity 9.5% coupon bond making annual coupon payments also selling at a yield to maturity of 5.75% has nearly identical duration-10.04 years-but considerably higher convexity of 264.3. a. Suppose the yield to maturity on both bonds Increases to 6.75%. What will be the actual percentage capital loss on each bond? What percentage capital loss 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.) Actual Predicted Zero Coupon Bond % % Coupon Bond % %

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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