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An 8-year maturity zero-coupon bond selling at a yield to maturity of 9% (effective annual...

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An 8-year maturity zero-coupon bond selling at a yield to maturity of 9% (effective annual yield) has convexity of 155.1 and modified duration of 7.06 years. A 30-year maturity 5% coupon bond making annual coupon payments also selling at a yield to maturity of 9% has nearly identical duration=7.04 yearsbut considerably higher convexity of 244.8. a. Suppose the yield to maturity on both bonds increases to 10%. 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.) Answer is complete but not entirely correct. Zero Coupon Bond Coupon Bond loss (7.05) X % (10.25) X % loss (6.28) % (5.82) % Actual Predicted b. Suppose the yield to maturity on both bonds decreases 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? (Input all amounts as positive values. Do not round intermediate calculations. Round your answers to 2 decimal places.) Answer is not complete. Coupon Bond Zero Coupon Bond % Actual Predicted gain gain % % %

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