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 durationâ11.04 yearsâbut 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.)
Zero Coupon Bond Coupon Bond Actual : gain/loss % % Predicted : loss/gain % %
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.)
Zero Coupon Bond Coupon Bond Actual : loss/gain % % Predicted : loss/gain % %
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 durationâ11.04 yearsâbut 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.) |
Zero Coupon Bond | Coupon Bond | |
Actual : gain/loss | % | % |
Predicted : loss/gain | % | % |
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.) |
Zero Coupon Bond | Coupon Bond | |
Actual : loss/gain | % | % |
Predicted : loss/gain | % | % |