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A 14.05-year maturity zero-coupon bond selling at a yield to maturity of 7% (effective annual yield) has convexity of 184.7 and modified duration of 13.13

A 14.05-year maturity zero-coupon bond selling at a yield to maturity of 7% (effective annual yield) has convexity of 184.7 and modified duration of 13.13 years. A 30-year maturity 5% coupon bond making annual coupon payments also selling at a yield to maturity of 7% has nearly identical modified duration-13.19 yearsbut considerably higher convexity of 277.4.

a. Suppose the yield to maturity on both bonds increases to 8%.

  1. What will be the actual percentage capital loss on each bond?
  2. 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.)

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.)

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