Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. a 13.25-year maturity zero-coupon bond selling at

A 13.25-year maturity zero-coupon bond selling at a yield to maturity of 7%(effective annual yield)...

50.1K

Verified Solution

Question

Finance

A 13.25-year maturity zero-coupon bond selling at a yield to maturity of 7%(effective annual yield) has convexity of 164.9 and modified duration of 12.38 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.
Required:
a. Suppose the yield to maturity on both bonds increases to 8%.
i. What will be the actual percentage capital loss on each bond?
ii. What percentage capital loss would be predicted by the duration-with-convexity rule?
Note: Do not round intermediate calculations. Round your answers to 2 decimal places.
\table[[,Zero-Coupon Bond,Coupon Bond,],[i. Actual loss,,%,%
image

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students