A 12-year maturity zero-coupon bond selling at a yield to maturity of 5.25% (effective annual yield) has convexity of 159.9 and modified duration of 11.06 years. A 30-year maturity 9.5% coupon bond making annual coupon payments also selling at a yield to maturity of 5.25% has nearly identical duration11.04 yearsbut considerably higher convexity of 258.4. a. Suppose the yield to maturity on both bonds increases to 6.25%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule? (Input all amounts as positive values. Do not round intermediate calculations. Round your answers to 2 decimal places.)

Zero Coupon Bond. Coupon Bond

Actual

Predicted

b. Suppose the yield to maturity on both bonds decreases to 4.25%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule? (Input all amounts as positive values. Do not round intermediate calculations. Round your answers to 2 decimal places.)

Zero Coupon Bond. Coupon Bond

Actual

Predicted