A $12-$year$-$maturity zero$-$coupon bond selling at a yield to maturity of $7\%($effective annual yield$)$ has convexity of $151\mathrm{.}5$ and modified duration of $11\mathrm{.}06$ years. A $30-$year$-$maturity $7\%$ coupon bond making annual coupon payments also selling at a yield to maturity of $7\%$ has nearly identical duration$11\mathrm{.}04$ years$$but considerably higher convexity of $234\mathrm{.}6.$

Required:

Suppose the yield to maturity on both bonds increases to $8\%.$ What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration$-$with$-$convexity rule?

Suppose the yield to maturity on both bonds decreases to $6\%.$ What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration$-$with$-$convexity rule?