A bond for the Chelle Corporation has the following characteristics: Maturity-12 years Coupon-10% Yield to maturity-9.50% Macaulay

Question:

A bond for the Chelle Corporation has the following characteristics:

Maturity-12 years

Coupon-10%

Yield to maturity-9.50%

Macaulay duration-5.7 years

Convexity-48

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.

b. Calculate the approximate price change for this bond (using only its duration) if its yield to maturity declined by 300 basis points. Discuss (without calculations) what would happen to your estimate of the price change if this was a callable bond.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...