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: (25 marks) 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. (21 marks) 2) Which bond would most likely protect investors against a significant increase in interest rates? (2 marks) 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: (2 marks)