Bonds with Embedded Call Options and Put Options A bond portfolio analyst constructs the following interest rate tree of forward rates based on the current spot rate and expected volatility: Oyly lyly 2yly 3.357% 2.443% 1.500% 2.250% 1.637% 1.508% The analyst applies the interest rate tree to a bond with a three-year tenor that carries a 2% coupon. An option free bond is priced at 100.139 per 100 of par value. 1. Determine the value of a bond with an embedded call option that can be called at the end of each year and the value of the call option. 2. Determine the value of a bond with an embedded put option that can be called at the end of each year and the value of the put option. Bonds with Embedded Call Options and Put Options A bond portfolio analyst constructs the following interest rate tree of forward rates based on the current spot rate and expected volatility: Oyly lyly 2yly 3.357% 2.443% 1.500% 2.250% 1.637% 1.508% The analyst applies the interest rate tree to a bond with a three-year tenor that carries a 2% coupon. An option free bond is priced at 100.139 per 100 of par value. 1. Determine the value of a bond with an embedded call option that can be called at the end of each year and the value of the call option. 2. Determine the value of a bond with an embedded put option that can be called at the end of each year and the value of the put option