Bond A: 10% (annual) coupon rate with semiannual payments, 5 years to maturity

Bond B: 4% (annual) coupon rate with semiannual payments, 20 years to maturity

Exhibit 1: Bond Price vs. Yield to Maturity for the Two Bonds

(the initial yield for both bonds is 5%; both bonds are semiannual and option-free)

	Bond Price
New Yield:	Bond A	Bond B
3.00%	132.277646	114.957923
3.40%	130.113251	108.655516
3.80%	127.992271	102.784144
4.20%	125.913728	97.311820
4.60%	123.876668	92.209046
4.80%	122.873402	89.787653
5.00%	121.880160	87.448612
5.20%	120.896829	85.188850
5.40%	119.923297	83.005412
5.80%	118.005193	78.856274
6.20%	116.124986	74.979807
6.60%	114.281831	71.356261
7.00%	112.474908	67.967391

Using a 20 bp rate shock, what is the approximate convexity of each bond? Using the duration model with convexity adjustment, what is the predicted percentage price change of each bond if yields rise by 200 bp, to 7%? With the convexity adjustment added in, does the duration model predict equally well for both bonds?