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  3. 2. a bond for the chelle corporation has the follo

2. A bond for the Chelle Corporation has the following characteristics: Maturity12 years Coupon10 percent...

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Finance

2. A bond for the Chelle Corporation has the following characteristics: Maturity12 years Coupon10 percent Yield to maturity9.50 percent Macaulay duration5.7 years Convexity48 Noncallable

a. Calculate the approximate price change for this bond using only its duration, assuming its yield to maturity increased by 150 basis points. Discuss (without calculations) the impact when you include the convexity effect.

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b. Calculate the approximate price change for this bond, using only duration, if its yield to maturity declined by 300 basis points.

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c. Calculate the approximate price change for this bond using both duration and convexity in the computation, once again assuming that its yield to maturity declined by 300 basis points.

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d. Discuss (without calculations) what would happen to your estimate of the price change if this was a callable bond.

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