A 13-year-maturity zero-coupon bond selling at a yield to maturity of 9.25% (effective annual yield) has convexity of 161.1 and modified duration of 12.06 years. A 30-year-maturity 5.5% coupon bond making annual coupon payments also selling at a yield to maturity of 9.25% has nearly identical duration-12.04 years-but considerably higher convexity of 233.7. Required: a. Suppose the yield to maturity on both bonds increases to 10.25%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule? b. Suppose the yield to maturity on both bonds decreases to 8.25%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule?

A 13-year-maturity zero-coupon bond selling at a yield to maturity of 9.25% (effective annual yield) has convexity of 161.1 and modified duration of 12.06 years. A 30-year-maturity 5.5% coupon bond making annual coupon payments also selling at a yield to maturity of 9.25% has nearly identical duration-12.04 years-but considerably higher convexity of 233.7. Required: a. Suppose the yield to maturity on both bonds increases to 10.25%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule? b. Suppose the yield to maturity on both bonds decreases to 8.25%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A 13-year-maturity zero-coupon bond selling at a yield to maturity of 9% (effective annual yield) has convexity of 174.3 and modified duration of 12.06 years. A 30-year-maturity 7% coupon bond making annual coupon payments also selling at a yield to maturity of 9% has nearly identical duration-12.04 years-but considerably higher convexity of 271.1. Required: 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? 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? Complete this question by entering your answers in the tabs below. Required A Required B Suppose the yield to maturity on both bonds increases to 10%. What will be the actual percentage capital loss on each bond?…
A 13.55-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield) has convexity of 169.0 and modified duration of 12.55 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. Required: a. 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 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 7%. 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.)
Assume the following: Bond A coupon = 6%, maturity = 5 years, yield to maturity = 6% Bond B coupon = 0%, maturity = 5 years, yield to maturity = 6% Bond C coupon = 6%, maturity = 5 years, yield to maturity = 6.5% Which of the following statements concerning duration is correct? Group of answer choices A. Duration of C<Duration of A=Duration of B. B. Duration of A>Duration of B>Duration of C. C. Duration of C < Duration of A < Duration of B. D. Duration of A< Duration of B<Duration of C.
● Calculate and interpret the Macaulay and modified durations of a a) 3-year 10% semi-annual bond (Bond C) when the required yield is 10%, and a b) 3-year zero-coupon bond (Bond D) when the required yield is 10% 16
A 9-year-maturity zero-coupon bond selling at a yield to maturity of 7.75% (effective annual yield) has convexity of 169.5 and modified duration of 8.06 years. A 30-year-maturity 7.5% coupon bond making annual coupon payments also selling at a yield to maturity of 7.75% has nearly identical duration-8.04 years-but considerably higher convexity of 257.5. Required: a. Suppose the yield to maturity on both bonds increases to 8.75%. What will be the actual percentage capital loss on each bond? What percentage capital loss would be predicted by the duration-with-convexity rule? b. Suppose the yield to maturity on both bonds decreases 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? Complete this question by entering your answers in the tabs below. Required A Required B. Suppose the yield to maturity on both bonds increases to 8.75%. What will be the actual percentage capital loss on…
A 13.35-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield) has convexity of 164.2 and modified duration of 12.36 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. Required: a. Suppose the yield to maturity on both bonds increases to 9%. i. What will be the actual percentage capital loss on each bond? il. 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.) Zero-Coupon Bond Coupon Bond LActual loss Predicted loss b. Suppose the yield to maturity on both bonds decreases to 7%. Show Transcribed Text b. Suppose the yield to maturity on both bonds decreases to 7%. i. What will be the actual percentage capital gain on each bond? ii. What percentage capital gain would be predicted by…
A 9-year maturity zero-coupon bond selling at a yield to maturity of 7.75% (effective annual yield) has convexity of 169.5 and modified duration of 8.06 years. A 30-year maturity 7.5% coupon bond making annual coupon payments also selling at a yield to maturity of 7.75% has nearly identical duration-8.04 years-but considerably higher convexity of 257.5. a. Suppose the yield to maturity on both bonds increases to 8.75% 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.) Zero Coupon Bond Coupon Bond Actual Predicted
A 12-year maturity zero-coupon bond selling at a yield to maturity of 5.25% (effective annual yield) has convexity of 159.9 and modified duration of 11.06 years. A 30-year maturity 9.5% coupon bond making annual coupon payments also selling at a yield to maturity of 5.25% has nearly identical duration-11.04 years-but considerably higher convexity of 258.4. a. Suppose the yield to maturity on both bonds increases to 6.25 %. 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.) Actual Predicted Zero Coupon Bond Coupon Bond % % % b. Suppose the yield to maturity on both bonds decreases to 4.25%. 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.…
Compute the Macaulay duration under the following conditions: a. A bond with a four-year term to maturity, a 10 percent coupon (annual payments), and a market yield of 8 percent. b. A bond with a four-year term to maturity, a 10 percent coupon (annual payments), and a market yield of 12 percent. c. Compare your answers to parts (a) and (b), and discuss the implications of this for classical immunization.
a. Manually compute the modified duration for a 3-years to maturity, 5% annual coupon bond, when the yield-to-maturity is 7%. b. Manually compute the modified duration for a 3-years to maturity, 5% annual coupon bond, when the yield-to-maturity is 5%. c. Compare your answers to above questions. Are they different? If so, what is the reason? Explain clearly
Given a 10-year time horizon, the reinvestment rate risk is LOWEST for a: Select one: a. 4-year, 5% coupon bond b. 8-year, 8% coupon bond c. 5-year, zero-coupon bond d. 9-year, zero-coupon bond
You observe the following term structure: 1-year zero-coupon bond 2-year zero-coupon bond 3-year zero-coupon bond 4-year zero-coupon bond Effective Annual Required A Required B YTM Required: a. If you believe that the term structure next year will be the same as today's, calculate the return on (1) the 1-year zero and (ii) the 4- year zero. b. Which bond provides a greater expected 1-year return? 8.3% 8.4 8.5 8.6 Complete this question by entering your answers in the tabs below. One year return on 1-year bond One year return on 4-year bond If you believe that the term structure next year will be the same as today's, calculate the return on (i) the 1-year zero and (ii) the 4-year zero. Note: Do not round intermediate calculations. Round your answers to 1 decimal place. % %

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