A bond for the Chelle Corporation has the following charateristics:

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 the impact of the calculation, including 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.

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.

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