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

a) What price would be predicted by the duration rule? You assume that yield to maturity falls to 7%.

b) What price would be predicted by the duration-with-convexity rule?

c) What is the percent error for each rule? What do you conclude about the accuracy of the two rules?

d) Repeat your analysis if the bonds yield to maturity increases to 9%. Are your conclusions about the accuracy of the two rules consistent with parts (a)-(c)?

Please answer all parts to receive positive rating