Question
In: Finance
Problem 16-23 An 11-year maturity zero-coupon bond selling at a yield to maturity of 5.75% (effective...
Problem 16-23
An 11-year maturity zero-coupon bond selling at a yield to
maturity of 5.75% (effective annual yield) has convexity of 171.9
and modified duration of 10.06 years. A 30-year maturity 9.5%
coupon bond making annual coupon payments also selling at a yield
to maturity of 5.75% has nearly identical duration—10.04 years—but
considerably higher convexity of 264.3.
a. Suppose the yield to maturity on both bonds
increases to 6.75%. What will be the actual percentage capital loss
on each bond? What percentage capital loss would be predicted by
the duration-with-convexity rule? (Input all amounts as
positive values. Do not round intermediate calculations. Round your
answers to 2 decimal places.)
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b. Suppose the yield to maturity on both bonds
decreases to 4.75%. What will be the actual percentage capital loss
on each bond? What percentage capital loss would be predicted by
the duration-with-convexity rule? (Input all amounts as
positive values. Do not round intermediate calculations. Round your
answers to 2 decimal places.)
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Solutions
jeff jeffy answered 1 year agoRelated Solutions
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