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Yield to Maturity on Bonds Assignment | Homework for You

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June 11th, 2020

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.Homework For You

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a. Suppose the yield to maturity on both bonds increases to 8%.

  1. What will be the actual percentage capital loss on each bond?
  2. 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.)Get Finance homework help today

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