A 30-year maturity bond making annual coupon payments with a coupon rate of 10% has duration of 10.37 years and convexity of 157.28. The bond currently sells at a yield to maturity of 10%.

a. Find the price of the bond if its yield to maturity falls to 9%. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. What price would be predicted by the duration rule? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

c. What price would be predicted by the duration-with-convexity rule? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

d-1. What is the percent error for each rule? (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.

d-2. What do you conclude about the accuracy of the two rules?

• The duration-with-convexity rule provides more accurate approximations to the true change in price.

• The duration rule provides more accurate approximations to the true change in price.

e-1. Find the price of the bond if its yield to maturity increases to 11%. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

e-2. What price would be predicted by the duration rule? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

e-3. What price would be predicted by the duration-with-convexity rule? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

e-4. What is the percent error for each rule? (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)

e-5. Are your conclusions about the accuracy of the two rules consistent with parts (a) (d)?

• Yes

• No