Q18. Bond Portfolio Management (8 Points) A 30-year maturity bond making annual coupon payments with a coupon rate of 12% has a duration of 11 years and convexity of 100. The bond currently sells at a yield to maturity of 8%. The actual price of the bond as a function of yield to maturity is: Yield to maturity Price 7% $1,620.45 8% $1,450.31 9% $1,308.21 What prices for the bond at these new yields would be predicted by the duration rule if yield falls to 7% or increases to 9%? What is the percentage error for the duration rule compared to the actual change? The duration-convexity formula is given by = -Modified Duration Ay+ 0.5 Convexity (Ay) P