A 8-year maturity zero-coupon bond selling at a yield to maturity of 9% (effective annual yield) has convexity of 155.1 and modified duration of 7.06 years. A 30-year maturity 5% coupon bond making annual coupon payments also selling at a yield to maturity of 9% has nearly identical duration7.04 yearsbut considerably higher convexity of 244.8.

a.

Suppose the yield to maturity on both bonds increases to 10%. What will be the actual percentage capital loss/gain on each bond? What percentage capital loss/gain would be predicted by the duration-with-convexity rule? (Input all amounts as positive values. Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "%" sign in your response.)

	Zero Coupon Bond	Coupon Bond
Actual (Click to select)lossgain	%	%
Predicted (Click to select)gainloss	%	%

b.

Suppose the yield to maturity on both bonds decreases to 8%. What will be the actual percentage capital loss/gain on each bond? What percentage capital loss/gain would be predicted by the duration-with-convexity rule? (Input all amounts as positive values. Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "%" sign in your response.)

	Zero Coupon Bond	Coupon Bond
Actual (Click to select)gainloss	%	%
Predicted (Click to select)lossgain	%	%