A 13.25-year maturity zero-coupon bond selling at a yield to maturity of 7% (effective annual yield) has convexity of 164.9 and modified duration of 12.38 years. A 40-year maturity 5% coupon bond making annual coupon payments also selling at a yield to maturity of 7% has nearly identical modified duration-13.96 years-but considerably higher convexity of 338.8.

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

	Zero-Coupon Bond	Coupon Bond
Actual loss %	________%	_________%
Predicted loss %	________ %	_________%

b. Suppose the yield to maturity on both bonds decreases to 6%. What will be the actual percentage capital gain on each bond? What percentage capital gain would be predicted by the duration-with-convexity rule? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

	Zero-Coupon Bond	Coupon Bond
Actual gain %	________ %	________ %
Predicted gain %	________ %	________ %