A 12.75 yr maturity zero-coupon bond selling at a yield to maturity of 8% [effective annual yield] has convexity of 150.3 and modified duration of 11.81 years. A 30-year maturity 6% coupon bond making annual payments also selling at a yield to maturity of 8% has nearly identical modified duration 11.79 years but considerably higher convexity of 231.2.

• Suppose the yield to maturity increases to 9%.
  1. What will be actual percentage capital loss on each bond?
  2. What percentage capital loss would be predicted by the duration-w-convexity rule?