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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Transcribed Image Text:An 11-year maturity zero-coupon bond selling at a yield to maturity of 5.75% (effective annual yield) 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
%
%
Actual
Predicted
Coupon Bond
%
%
b. Suppose the yield to maturity on both bonds decreases to 4.75%. 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.)
Zero Coupon Bond Coupon Bond
%
%
%
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