Q19. (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 a. b. What prices for the bond would be predicted by the duration rule if yield falls to 7%? What is the percentage error for the duration rule compared to the actual change? What prices for the bond would be predicted by the duration-convexity rule if yield increases to 9%? What is the percentage error for the duration-convexity rule compared to the actual change? The duration-convexity formula is given by AP :-Modified Duration x Ay + 0.5 x Convexity X (Ay)? P