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(7 points) The yields on the 1,2, and 3-year US government zero coupon bonds (STRIPs) with the face value of $1000 are 1.5%, 2.2% and
(7 points) The yields on the 1,2, and 3-year US government zero coupon bonds (STRIPs) with the face value of $1000 are 1.5%, 2.2% and 3.1%, respectively. The yield on the 3-year callable US government bond which carries 4% coupon rate and has face value of $1,000 is 4.6%. What is the market value of the option to call the bond back? Explain and show your calculations
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