A 13-year-maturity zero-coupon bond selling at a yield to maturity of 9.25% (effective annual yield) has convexity of 161.1 and modified duration of 12.06 years. A 30-year-maturity 5.5% coupon bond making annual coupon payments also selling at a yield to maturity of 9.25% has nearly identical duration-12.04 years-but considerably higher convexity of 233.7. Required: a. Suppose the yield to maturity on both bonds increases to 10.25%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule? b. Suppose the yield to maturity on both bonds decreases to 8.25%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule?
A 13-year-maturity zero-coupon bond selling at a yield to maturity of 9.25% (effective annual yield) has convexity of 161.1 and modified duration of 12.06 years. A 30-year-maturity 5.5% coupon bond making annual coupon payments also selling at a yield to maturity of 9.25% has nearly identical duration-12.04 years-but considerably higher convexity of 233.7. Required: a. Suppose the yield to maturity on both bonds increases to 10.25%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule? b. Suppose the yield to maturity on both bonds decreases to 8.25%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![A 13-year-maturity zero-coupon bond selling at a yield to maturity of 9.25% (effective annual yield) has convexity of 161.1 and modified
duration of 12.06 years. A 30-year-maturity 5.5% coupon bond making annual coupon payments also selling at a yield to maturity of
9.25% has nearly identical duration-12.04 years-but considerably higher convexity of 233.7.
Required:
a. Suppose the yield to maturity on both bonds increases to 10.25%. What will be the actual percentage capital loss on each bond?
What percentage capital loss would be predicted by the duration-with-convexity rule?
b. Suppose the yield to maturity on both bonds decreases to 8.25%. What will be the actual percentage capital loss on each bond?
What percentage capital loss would be predicted by the duration-with-convexity rule?
Complete this question by entering your answers in the tabs below.
Required A Required B
Suppose the yield to maturity on both bonds increases to 10.25%. What will be the actual percentage capital loss on each
bond? What percentage capital loss would be predicted by the duration-with-convexity rule?
Note: Input all amounts as positive values. Do not round intermediate calculations. Round your answers to 2 decimal places.
Actual
Predicted
Zero Coupon Bond
%
%
Coupon Bond
%
<Required A
< Prev
Required B >
10 of 10
HH
Next >](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F87fac4c9-32fd-4ac4-aed2-587ff557388b%2F0dafce1b-d25a-4e4e-8b8e-92d3ee201e2e%2Fn615xkp_processed.jpeg&w=3840&q=75)
Transcribed Image Text:A 13-year-maturity zero-coupon bond selling at a yield to maturity of 9.25% (effective annual yield) has convexity of 161.1 and modified
duration of 12.06 years. A 30-year-maturity 5.5% coupon bond making annual coupon payments also selling at a yield to maturity of
9.25% has nearly identical duration-12.04 years-but considerably higher convexity of 233.7.
Required:
a. Suppose the yield to maturity on both bonds increases to 10.25%. What will be the actual percentage capital loss on each bond?
What percentage capital loss would be predicted by the duration-with-convexity rule?
b. Suppose the yield to maturity on both bonds decreases to 8.25%. What will be the actual percentage capital loss on each bond?
What percentage capital loss would be predicted by the duration-with-convexity rule?
Complete this question by entering your answers in the tabs below.
Required A Required B
Suppose the yield to maturity on both bonds increases to 10.25%. What will be the actual percentage capital loss on each
bond? What percentage capital loss would be predicted by the duration-with-convexity rule?
Note: Input all amounts as positive values. Do not round intermediate calculations. Round your answers to 2 decimal places.
Actual
Predicted
Zero Coupon Bond
%
%
Coupon Bond
%
<Required A
< Prev
Required B >
10 of 10
HH
Next >
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