As part of your analysis of debt issued by Monticello Corporation, you are asked to evaluate two of its bond issues, shown in the following table. Properties Bond A $($Callable$)$ Bond B $($Noncallable$)$

Maturity $20202020$

Coupon $11\mathrm{.}50\%7\mathrm{.}25\%$

Yield to maturity $7\mathrm{.}70\%7\mathrm{.}25\%$

Modified duration to maturity $6\mathrm{.}206\mathrm{.}80$

Call date $2014$

Call price $105$

Yield to call $5\mathrm{.}10\%$

Modified duration to call $3\mathrm{.}10$ a$)$ Using the duration and yield information in the table above, compare the

price and yield behaviour of the two bonds under each of the following two

scenarios:

i$.$ Strong economic recovery with rising inflation expectations.

ii$.$ Economic recession with reduced inflation expectations.

b$)$ Using the information in the table, calculate the projected price change for

bond B if its yield to maturity falls by $75$ basis points. Show your work.

c$)$ Describe the shortcoming of analysing bond A strictly to call or to maturity.