1. Consider the following characteristics of Shell Corporations noncallable bond and semi-annual interest payments:

Maturity12 yearsCoupon Rate10%Yield to Maturity9.50%Macaulay duration5.7 yearsConvexity48

i)What is the approximate price change for this bond using modified duration only, assuming an increase in its yield to maturity of 150 basis points?

ii)What is the approximate price change for this bond using modified duration and convexity in its computation, assuming the same change in yield to maturity?

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