The current one year spot rate is 10%, but the rates can change in the future.

You estimate that u = 0.9 and d = 0.4.

Now, Value a straight bond with the following features: it matures in three years, has no default risk, pays a 10% coupon each year, and has $1000 face value.

-Assuming that the bond is callable, and the call price is $1010 per bond. Calculate

(A) the price of the callable bond;

(B) the value of the call option alone.