7 First Semester Examinations FINM3003 June, 2021 5. (continued) (iii) Using the tree or otherwise, price a 3-year bond with a principal repayment of $100 paying a 10% coupon each year. (2 marks] (iv) Use the tree to price a 2-year European call option with strike 110 on the bond in (ii). (The coupon is assumed paid before exercise.) [2 marks] (v) Use the tree to price a 2-year American call option with strike 110 on the bond in (ii). (The coupon is assumed paid before exercise.) [2 marks] (vi) You take out a 3 year, $100 loan, on which interest is capped at 5% p.a. Use the tree to calculate the premium you should pay. [2 marks] END