5. Given the following information in Exhibit 1 and Exhibit 2, the value of the embedded option on Bond 4 is? EXHIBIT 1 Par, Spot, and One-Year Forward Rates (annual coupon payments) Maturity (Years) Par Rate (%) Spot Rate (%) One-Year Forward (%) 1 1.0000 1.0000 1.0000 2 1.2000 1.2012 1.4028 3 1.2500 1.2515 1.3522 EXHIBIT 2 Selected Fixed-Rate Bonds of Alpha Corporation Bond Annual Coupon Type of Bond Bond 1 1.5500% Straight bond Bond 2 1.5500% Convertible bond: currently trading out of the money Bond 3 1.5500% Putable bond: putable at par one year and two years from now Bond 4 1.5500% Callable bond: callable at par without any lockout periods Note: All bonds in Exhibit 2 have remaining maturities of exactly three years. 5. Given the following information in Exhibit 1 and Exhibit 2, the value of the embedded option on Bond 4 is? EXHIBIT 1 Par, Spot, and One-Year Forward Rates (annual coupon payments) Maturity (Years) Par Rate (%) Spot Rate (%) One-Year Forward (%) 1 1.0000 1.0000 1.0000 2 1.2000 1.2012 1.4028 3 1.2500 1.2515 1.3522 EXHIBIT 2 Selected Fixed-Rate Bonds of Alpha Corporation Bond Annual Coupon Type of Bond Bond 1 1.5500% Straight bond Bond 2 1.5500% Convertible bond: currently trading out of the money Bond 3 1.5500% Putable bond: putable at par one year and two years from now Bond 4 1.5500% Callable bond: callable at par without any lockout periods Note: All bonds in Exhibit 2 have remaining maturities of exactly three years