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 years—but considerably higher convexity of 272.9.

**Required:**

**a. **Suppose the yield to maturity on both bonds increases to 9%.

- What will be the actual percentage capital loss on each bond? zero bond and coupon bond
- What percentage capital loss would be predicted by the duration-with-convexity rule? zero bond and coupon bond

**(Do not round intermediate calculations. Round your answers to 2 decimal places.)**

**b. **Suppose the yield to maturity on both bonds decreases to 7%.

- What will be the actual percentage capital gain on each bond? zero bond and coupon bond
- What percentage capital gain would be predicted by the duration-with-convexity rule? zero bond and coupon bond

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