On 1 October 2016, you are reviewing two fixed-rate bonds issued by a local firm, the two bonds, whose characteristics are given in the table below:

Bond	Maturity	Coupon	Type of Bond
Bond A	1 October 2019	6% annual	Callable at par on 1 October 2017 and on 1 October 2018
Bond B	1 October 2019	6% annual	Putable at par on 1 October 2017 and on 1 October 2018

Based on an estimated interest rate volatility of 20%, you constructed the binomial annual interest rate tree shown below.

0.035	0.06815	0.1183
	0.04285	0.07932
		0.05317

1) Calculate the value of Bond A and Bond B.

2) Which bond would most likely protect investors against a significant increase in interest rates?

3) All else being equal if you assume an interest rate volatility of 15% instead of 20%, the bond that would most likely increase in value is: