..par value of $1000, and selling at $1018. Assuming that one-year rates undergo a lognormal random walk with volatility s, and s is assumed to be 12% . It is given that the one year spot rate is 5.03%.

5. For an IBM bond with 6% coupon rate (annual coupon poayment), two year to maturity, par value of $1,000 (a) Calculate the one-year forward rate one year from now in low state using binomial model. (b) Calculate the value of the IBM bond in the question If the coupon rate changes to 7% using binomial model. (c) Calculate the value of the IBM bond in the question assuming It is callable at price of $1000. (d) Calculate the value of the IBM bond in the question assuming It is putable at price of $1000