A 13.55-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield)...
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A 13.55-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield) has convexity of 169.0 and modified duration of 12.55 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 yearsbut considerably higher convexity of 272.9. Required: a. Suppose the yield to maturity on both bonds increases to 9%. i. What will be the actual percentage capital loss on each bond? ii. 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.) Answer is complete but not entirely correct. Zero-Coupon Bond Coupon Bond i. Actual loss (12.47) % (12.47) % ii. Predicted loss (12.47) % (12.16) % b. Suppose the yield to maturity on both bonds decreases to 7%. i. What will be the actual percentage capital gain on each bond? ii. 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.) i. Actual gain ii. Predicted gain Answer is complete but not entirely correct. Zero-Coupon Bond Coupon Bond 6.84% 6.84% 6.84 % 6.84 % A 13.55-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield) has convexity of 169.0 and modified duration of 12.55 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 yearsbut considerably higher convexity of 272.9. Required: a. Suppose the yield to maturity on both bonds increases to 9%. i. What will be the actual percentage capital loss on each bond? ii. 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.) Answer is complete but not entirely correct. Zero-Coupon Bond Coupon Bond i. Actual loss (12.47) % (12.47) % ii. Predicted loss (12.47) % (12.16) % b. Suppose the yield to maturity on both bonds decreases to 7%. i. What will be the actual percentage capital gain on each bond? ii. 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.) i. Actual gain ii. Predicted gain Answer is complete but not entirely correct. Zero-Coupon Bond Coupon Bond 6.84% 6.84% 6.84 % 6.84 %
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