A 20-yr bond making annual payments with a coupon rate of 4% has duration of 13.681, and convexity of 225.94. The bond currently sells at a yield to maturity of 48 IV. 49 50 5%. a. Find the price of the bond if rates increase to 6% b. what price would be predicted by the duration rule? c. what price would be predicted by the duration+convexity rule? d. what do you conclude about the accuracy of the two rules?

47 48 IV. 49 50 51 A 20-yr bond making annual payments with a coupon rate of 4% has duration of 13.681, and convexity of 225.94. The bond currently sells at a yield to maturity of 5%. a. Find the price of the bond if rates increase to 6% b. what price would be predicted by the duration rule? c. what price would be predicted by the duration+convexity rule? d. what do you conclude about the accuracy of the two rules? 52 53 54