Valuing the Call Feature Consider the prices in the following three Treasury issues as of February 24, 2006:

6.500 May 12n 106:10 106:12 –13 5.28 8.250 May 12 103:14 103:16 –3 5.24 12.000 May 12 134:25 134:31 –15 5.32 The bond in the middle is callable in February 2007. What is the implied value of the call feature? (Hint: Is there a way to combine the two noncallable issues to create an issue that has the same coupon as the callable bond?) LO.1