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A 30year maturity bond making annual coupon payments with a coupon rate of 14.0% has duration of 11.36 years and convexity of 186.4. The bond currently sells at a yield to maturity of 8%.
a. Find the price of the bond if its yield to maturity falls to 7%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Price of the bond $
b. What price would be predicted by the duration rule? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Predicted price $
c. What price would be predicted by the durationwithconvexity rule? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Predicted price $
d1. What is the percent error for each rule? (Enter your answer as a positive value. Do not round intermediate calculations. Round "Duration Rule" to 2 decimal places and "DurationwithConvexity Rule" to 3 decimal places.)
Percent Error 

YTM 
Duration Rule 
Durationwith 
7% 
% 
% 
d2. What do you conclude about the accuracy of the two rules?
The duration rule provides more accurate approximations to the actual change in price. 

The durationwithconvexity rule provides more accurate approximations to the actual change in price. 
e1. Find the price of the bond if it's yield to maturity rises to 9%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Price of the bond $
e2. What price would be predicted by the duration rule? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Predicted price $
e3. What price would be predicted by the durationwithconvexity rule? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Predicted price $
e4. What is the percent error for each rule? (Do not round intermediate calculations. Round "Duration Rule" to 2 decimal places and "DurationwithConvexity Rule" to 3 decimal places.)
Percent Error 

YTM 
Duration Rule 
Durationwith 
9% 
% 
% 
e5. Are your conclusions about the accuracy of the two rules consistent with parts (a) – (d)?
Yes 

No 
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