Please resolve

a)An investor purchases a 10-year AA corporate bond that is puttable to the issuer at year 5. The puttable bond yields 7.00% pa (versus the comparable yield on conventional ten year non-puttable 10-year AA corporate bond of 7.5% pa). How to monetize the puttable right using a swaption? Describe the nature of payoff of the swaption. What would be the option premium charged on the swaption per annum in order that it is more advantageous for the investor to own the puttable bond (which has a lower yield than that of its non-puttable counterpart)?

b)

Assume that the following market conditions exist: 5-year AA corporate bonds with a one time call at the end of third year are trading at 8.3% pa 5-year AA corporate non-callable bonds are trading at 7.50% pa Receiver swaption at 7.50% pa is priced at a 180bps premium, where the dealer can require the investor to pay 7.5% pa and receive US$ LIBOR for Year 4 and Year 5 5-year AA non-callable floating rate bond yielding US$LIBOR 3-year and 5-year fixed-floating interest rate swaps, where the floating rate is US$LIBOR Assume that an investor wishes to have a "synthetic" callable bond (same as the first bond listed above) using a non-callable bond (either fixed rate or floating rate) and swaps and / or swaption. Discuss various strategies that can be adopted using the instruments listed above. Describe the cash flows under different scenarios. Is it more advantageous to own the "synthetic" callable b