# A 30-year maturity bond making annual coupon payments with a coupon rate of 12% has duration of…

A 30-year maturity bond making annual coupon payments with a coupon rate of 12% has duration of 11.54 years and convexity of 192.4. The bond currently sells at a yield to maturity of 8%. a. Use a financial calculator or spreadsheet to find the price of the bond if its yield to maturity falls to 7%. b. What price would be predicted by the duration rule? c. What price would be predicted by the duration-with-convexity rule? d. What is the percent error for each rule? What do you conclude about the accuracy of the two rules? e. Repeat your analysis if the bonds yield to maturity
A 30-year maturity bond making annual coupon payments with a coupon rate of 12% has duration of 11.54 years and convexity of 192.4. The bond currently sells at a yield to maturity of 8%. a. Use a financial calculator or spreadsheet to find the price of the bond if its yield to maturity falls to 7%. b. What price would be predicted by the duration rule? c. What price would be predicted by the duration-with-convexity rule? d. What is the percent error for each rule? What do you conclude about the accuracy of the two rules? e. Repeat your analysis if the bonds yield to maturity increases to 9%. Are your conclusions about the accuracy of the two rules consistent with parts (a) (d)?

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