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A 14.05-year maturity zero-coupon bond selling at a yield to maturity of 7% (effective annual yield) has convexity of 160.0 and modified duration of 12.81 years. A 30-year maturity 5% coupon bond maki
A 14.05-year maturity zero-coupon bond selling at a yield to maturity of 7% (effective annual yield) has convexity of 160.0 and modified duration of 12.81 years. A 30-year maturity 5% coupon bond making annual coupon payments also selling at a yield to maturity of 7% has nearly identical modified duration—-12.95 years—-but considerably higher convexity of 240.0.a. Suppose the yield to maturity on both bonds increases to 8%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule? (Do not round intermediate calculations. Round your answers to 2 decimal places.)Zero-Coupon Bond Coupon BondActual loss % % Predicted loss % % b. Suppose the yield to maturity on both bonds decreases to 6%. What will be the actual percentage capital gain on each bond? What percentage capital gain would be predicted by the duration-with-convexity rule? (Do not round intermediate calculations. Round your answers to 2 decimal places.)Zero-Coupon Bond Coupon BondActual gain % % Predicted gain % %
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* ********* ******** zero-coupon **** ******* at a ***** ** maturity of ** ********** ****** ****** *** ********* of **** *** ******** ******** ** **** years * ******* ******** ** ****** **** ****** ****** coupon ******** **** selling ** * ***** ** ******** ** 7% has ****** identical modified **************** years—-but considerably higher convexity ** ************ *** yield ** ******** ** both bonds increases ** ** **** will ** *** actual ********** ******* loss ** each bond? **** percentage ******* loss ***** ** predicted ** the *********************** rule? *** not ***** ************ ************ ***** **** answers to * decimal ****************** Bond ****** BondActual **** * ********** **** * *************** price ** *** zero ****** bond ****** **** ****** ******* at a ***** ** maturity ** ** ** ****** *** *** ***** ** *** ****** bond ** ******** * *** ** ** the ****** price ** *** **** coupon **** ** ****** and the ****** price ** *** ****** **** ** $66227Zero ****** bondActual ***** = ****** *** ************ * -01225 ** *************** loss * * ****** * **** + *** * 160 * ***** * ****** ** -1201%Coupon bondActual ***** = (66227 – ************ * -01191 ** *************** loss * = [-1295 * **** * [05 * *** * ***** * ****** ** ************** the ***** ** maturity ** **** ***** decreases ** ** **** will be the actual ********** capital **** ** **** ***** **** percentage ******* **** ***** ** predicted ** *** *********************** ***** *** *** ***** intermediate calculations ***** **** ******* to * ******* ****************** **** ****** BondActual **** * ********** **** * %Solution:The ***** of *** **** coupon **** ($1000 face ****** selling ** * yield ** ******** ** ** is ****** and *** ***** ** *** coupon **** ** ******** * *** of ** *** actual ***** ** *** zero coupon **** ** $44101 *** *** ****** ***** ** *** ****** bond ** ********** ****** bondActual ***** * ****** *** ************ = **** ** ************** **** * * ****** * ***** * [05 * *** * ***** = ***** or 1361%Coupon ********** ***** * (86235 *** ************ = ***** ** ************** gain% * [-1295 x ***** + *** x *** * 0012] = ***** ** *********
