Imagine that you are trying to price a default-free bond with a 9% coupon using the binomial interest rate model.

Assume: that u = 1.1 and d = 0.95 and that the current one-year spot rate is 10%.

1. Use a three-period binomial interest rate model to price this bond.

2. Now, assume that the bond is callable and that the call price is $98.

(A) What is its price?

(B) What is the difference in the price of the bond under these two conditions?