Pleas show formulas and caluculations for each step.

A bond for the Chelle Corporation has the following characteristics:

Maturity12 years

Coupon10%

Yield to maturity9.50%

Macaulay duration5.7 years

Convexity48

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