A 30-year maturity bond making annual coupon payments with a coupon rate of 7.5%

Question

A 30-year maturity bond making annual coupon payments with a coupon rate of 7.5% has duration of 12.27 years and convexity of 216.28. The bond currently sells at a yield to maturity of 8%. Find the price of the bond if its yield to maturity falls to 7% or rises to 9%. (Round your answers to 2 decimal places. Omit the "$" sign in your response.) What prices for the bond at these new yields would be predicted by the duration rule and the duration-with-convexity rule? (Round your answers to 2 decimal places. Omit the "$" sign in your response.) What is the percentage error for each rule? (Negative answers should be indicated by a minus sign. Round your answers to 2 decimal places. Omit the "%" sign in your response.) What do you conclude about the accuracy of the two rules? The duration-with-convexity rule provides more accurate approximations to the true change in price. The duration rule provides more accurate approximations to the true change in price.

Explanation / Answer

A 30-year maturity bond making annual coupon payments with a coupon rate of 7.5%

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