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A 30-year maturity bond making annual coupon payments with a coupon rate of 12% has duration...

A 30-year maturity bond making annual coupon payments with a coupon rate of 12% has duration of 11.54 years and convexity of 190.8. The bond currently sells at a yield to maturity of 8%.

Required:
(a)

Find the price of the bond if its yield to maturity falls to 7% or rises to 9%. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

  Yield to maturity of 7% $     
  Yield to maturity of 9% $   
(b)

What prices for the bond at these new yields would be predicted by the duration rule and the duration-with-convexity rule?(Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Duration rule Duration-with-
convexity rule
  YTM falls to 7% $    $   
  YTM increases to 9% $    $   
(c) What is the percent error for each rule? (Round your answers to 3 decimal places. Omit the "%" sign in your response.)
Duration rule Duration-with-
convexity rule
  Percent error for 7% YTM %   %  
  Percent error for 9% YTM %   %  
(d) What do you conclude about the accuracy of the two rules?


         (Click to select)   The duration rule provides more accurate approximations to the actual change in price.   The duration-with-convexity rule provides more accurate approximations to the actual change in price.

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