#4. (20 points) Suppose that Treasury bond rates are currently 10% but will change tomorrow to be 6% or 14%: each outcome is equally likely. After the rate change rates are expected to remain at either 6% or 14% permanently. Let us consider a 20-year 10% callable bond with the strike price of $105 and the call protection period of 5 years. The market price of the callable bond is $93.20. Assume annual compounding. What is the fair value of the callable bond without any consideration of credit risk? What is the yield spread between the callable bond and a 20-year 10% straight bond? What is the effective duration of the callable bond? What is the OAS on the callable bond