A 14.55-year maturity zero-coupon bond selling at a yield to maturity of 7% (effective annual yield)...

A 14.55-year maturity zero-coupon bond selling at a yield to maturity of 7% (effective annual yield) has convexity of 197.7 and modified duration of 13.60 years. A 40-year maturity 5% coupon bond making annual coupon payments also selling at a yield to maturity of 7% has nearly identical modified duration—-13.96 years—but considerably higher convexity of 338.8.

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.)

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.)

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

A 12.25-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield)...

A 12.25-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield) has convexity of 139.2 and modified duration of 11.34 years. A 40-year maturity 6% coupon bond making annual coupon payments also selling at a yield to maturity of 8% has nearly identical modified duration—-12.30 years—but considerably higher convexity of 272.9. a. Suppose the yield to maturity on both bonds increases to 9%. What will be the actual percentage capital loss on each bond? What...

A 12.75-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield)...

A 12.75-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield) has convexity of 150.3 and modified duration of 11.81 years. A 30-year maturity 6% coupon bond making annual coupon payments also selling at a yield to maturity of 8% has nearly identical duration—11.79 years—but considerably higher convexity of 231.2. Suppose the yield to maturity on both bonds increases to 9%. What will be the actual percentage capital loss on each bond? What percentage capital...

A 13.05-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield)...

A 13.05-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield) has convexity of 120.2 and modified duration of 11.91 years. A 40-year maturity 6% coupon bond making annual coupon payments also selling at a yield to maturity of 8% has nearly identical modified duration—-11.65 years—-but considerably higher convexity of 280.2. a. Suppose the yield to maturity on both bonds increases to 9%. What will be the actual percentage capital loss on each bond? What...

A 13.05-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield)...

A 13.05-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield) has convexity of 157.2 and modified duration of 12.08 years. A 40-year maturity 6% coupon bond making annual coupon payments also selling at a yield to maturity of 8% has nearly identical modified duration—-12.30 years—-but considerably higher convexity of 272.9. a. Suppose the yield to maturity on both bonds increases to 9%. What will be the actual percentage capital loss on each bond? What...

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?...

A 12 year bond 1000 face value bond has an 8% annual coupon and a yield to maturity of 7%

A 12 year bond 1000 face value bond has an 8% annual coupon and a yield to maturity of 7%, what will be the price of the bond 3 years from today?

Find the convexity of a seven-year maturity, 5.2% coupon bond selling at a yield to maturity...

Find the convexity of a seven-year maturity, 5.2% coupon bond selling at a yield to maturity of 7.9%. The bond pays its coupons annually.(Do not round intermediate calculations. Round your answer to 4 decimal places.) Assume $1,000 par value

Find the convexity of a 10-year maturity, 5% coupon bond selling at a yield to maturity...

Find the convexity of a 10-year maturity, 5% coupon bond selling at a yield to maturity of 6%. the bond pays its coupons annually.

Find the convexity of a seven-year maturity, 8.6% coupon bond selling at a yield to maturity...

Find the convexity of a seven-year maturity, 8.6% coupon bond selling at a yield to maturity of 9.4%. The bond pays its coupons annually. (Do not round intermediate calculations. Round your answer to 4 decimal places.) Convexity

The YTM (yield to maturity) on a one-year zero-coupon bond is 5% and the YTM on...

The YTM (yield to maturity) on a one-year zero-coupon bond is 5% and the YTM on a two-year zero-coupon bond is 6%. The treasury is planning to issue a 2-year, annual coupon bond with a coupon rate of 7% and a face value of $1,000. a) Compute the value of the two-year coupon bond. b) Compute the yield to maturity of the two-year coupon bond. c) If the expectations hypothesis is correct, what is the market expectation of the price...

Subjects