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Consider the following tree t = 0 t = 1 t = 2 t = 3 t = 4 a) What is the price of

Consider the following treeimage text in transcribed

t = 0 t = 1 t = 2 t = 3 t = 4

a) What is the price of a 4-Year 9% coupon $100 Par bond that is callable at the end of Year 1 for $85 and from the end of Year 2 for $ 87, but is not callable in Year 3.

b) What is the price of the embedded option?

Periods on tree go from Year 0 - year 4 from left to right.

0.196941 0.137401 0.095862 0.262012 0.186493 0.13274 0.09448 0.338464 0.245776 0.17847 0.129596 0.14318 0.1 0.097916 0.094106 0.196941 0.137401 0.095862 0.262012 0.186493 0.13274 0.09448 0.338464 0.245776 0.17847 0.129596 0.14318 0.1 0.097916 0.094106

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