# A 13.55-year maturity zero-coupon bond selling at a yield to

0
(0)

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%.

1. What will be the actual percentage capital loss on each bond? zero bond and coupon bond
2. 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%.

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

## Improve Your Grades TodayHow It Works

1-Send us your Assignment requirements, attach and deadline for submission.

2-You will get a confirmation from us with a price quote.Pay us and be relax.

3-Your Completed task will be e mailed to you before agreed time.

## Available 24/7!

Send your academic problems,

Get instant Help only at Writerscampus!

How useful was this post?

Click on a star to rate it!