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    Bond Valuation

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    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

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

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    As we know that,

    Assume that the par value of bond=$100
    Given ...

    Solution Summary

    This solution comprised of a detail solution to value a bond with the help of its duration.