Consider a default-free three-year 4% annual coupon bond. The interest rate today is 2.5%, the interest rate on the lower node in year one (L1) is 3.1681% and Lower node in year two (LL2) 3.7041%. Assume an interest rate volatility of 20%. The bond is callable in year 1 and 2 at par.

Using a 2 period binomial model, calculate the value of the bond today.