A 30-year maturity bond making annual coupon payments with a coupon rate of 12% has duration of 11.54 years and convexity of 192.4. The bond currently sells at a yield to maturity of 8%.

Required:

a. Find the price of the bond if its yield to maturity falls to 7%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What price would be predicted by the duration rule, if its yield to maturity falls to 7%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. What price would be predicted by the duration-with-convexity rule, if its yield to maturity falls to 7%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

d-1. What is the percent error for each rule, if its yield to maturity falls to 7%? (Enter your answers as positive values. Do not round intermediate calculations. Round "Duration Rule" to 2 decimal places and "Duration-with-Convexity Rule" to 3 decimal places.)

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

multiple choice 1

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

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

e-1. Find the price of the bond if it's yield to maturity rises to 9%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

e-2. What price would be predicted by the duration rule, if it's yield to maturity rises to 9%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

e-3. What price would be predicted by the duration-with-convexity rule, if it's yield to maturity rises to 9%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

e-4. What is the percent error for each rule? (Do not round intermediate calculations. Round "Duration Rule" to 2 decimal places and "Duration-with-Convexity Rule" to 3 decimal places.)

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

multiple choice 2

Yes

No