(a) The diagram below shows a binomial tree for a 6.5% coupon bond based on an interest rate volatility of 10%. 0 1 2 3 uuu node rate price coupon 100.000000 6.500000 r23uu 0.096030 ? 6.500000 uud r12u 0.084810 ? 6.500000 100.000000 6.500000 rO 0.075000 ? r23ud 0.078620 ? 6.500000 udd r12d 0.069440 100.000000 6.500000 6.500000 r23dd 0.064370 ? 6.500000 ddd 100.000000 6.500000 Create a model (use an Excel spreadsheet) and compute the price of the bond. (8 marks) (b) Suppose the bond above is now callable at only time I and time 2 at prices of 102 and 101, respectively. Calculate the price of the call option associated with the bond. (6 marks) (a) The diagram below shows a binomial tree for a 6.5% coupon bond based on an interest rate volatility of 10%. 0 1 2 3 uuu node rate price coupon 100.000000 6.500000 r23uu 0.096030 ? 6.500000 uud r12u 0.084810 ? 6.500000 100.000000 6.500000 rO 0.075000 ? r23ud 0.078620 ? 6.500000 udd r12d 0.069440 100.000000 6.500000 6.500000 r23dd 0.064370 ? 6.500000 ddd 100.000000 6.500000 Create a model (use an Excel spreadsheet) and compute the price of the bond. (8 marks) (b) Suppose the bond above is now callable at only time I and time 2 at prices of 102 and 101, respectively. Calculate the price of the call option associated with the bond. (6 marks)