Question
A 30-year maturity bond making annual coupon payments with a coupon rate of 12.5% has duration of 9.54 years and convexity of 133.35. The bond
| A 30-year maturity bond making annual coupon payments with a coupon rate of 12.5% has duration of 9.54 years and convexity of 133.35. The bond currently sells at a yield to maturity of 11%. |
| a. | Find the price of the bond if its yield to maturity falls to 10% or rises to 12%. (Round your answers to 2 decimal places. Omit the "$" sign in your response.) |
| Yield to maturity of 10% | $ |
| Yield to maturity of 12% | $ |
| b. | What prices for the bond at these new yields would be predicted by the duration rule and the duration-with-convexity rule? (Round your answers to 2 decimal places. Omit the "$" sign in your response.) |
| Duration Rule | Duration-with- convexity Rule | |
| YTM falls to 10% | $ | $ |
| YTM increases to 12% | $ | $ |
| c. | What is the percentage error for each rule? (Negative answers should be indicated by a minus sign. Round your answers to 2 decimal places. Omit the "%" sign in your response.) |
| Duration Rule | Duration-with- convexity Rule | |
| Percent error for 10% YTM | % | % |
| Percent error for 12% YTM | % | % |
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