28. As a continuation of your analysis of Monticello's debt you are asked to evaluate two specific bond issues held in Cavalier managed accounts, as shown in the table below.

a. Using the duration and yield information in the table, compare the price and yield behavior of the two bonds under each of the following two scenarios:

• Scenario I-strong economic recovery with rising inflation expectations

• Scenario 2-economic recession with reduced inflation expectations.

b. Using the information in the table below, calculate the projected price change for Bond B if the yield-to-maturity for this bond falls by 75 basis points.

c. Describe the shortcoming of analyzing Bond A strictly to call or to maturity.

Explain an approach to remedy this shortcoming.

Maturity Coupon Current price Yield-to-maturiry Modified duration to maturity Convexity to maturity Call date Call price Yield-to-call Maturity duration to call Convexity to call Bond A

,callable)

2002 11.50%

125.75 7.io%

6.20 0.50 1996

]05 5.10%

!UO 0.10 BondB fNon-Callable)

2002 7.25%

]00.00 7.25%

6.80 0.60