The current on-the-run yields for the CGC Corporation are as follows:

Maturity (years)	Yield to Maturity (%)
1	Equal to yield on 10-year Treasury
2	Equal to yield on 20-year Treasury
3	Equal to yield on 30-year Treasury

Maturity (years)	Yield to Maturity (%)
1	1.86%
2	2.16%
3	2.39%

Assume that each bond is an annual-pay bond. Each bond is trading at par, so its coupon rate is equal to its yield to maturity.

1. Compute the values that will fill the table below:

Maturity (years)	Yield to Maturity (%)	yN (%)	fN (%)
1	Your value
2	Your value
3	Your value

b. Using the yield curve information above, what would be the value of a 3.00% 3-year to maturity option-free bond of the CGC Corporation?

c. Determine the value of an 3.00% coupon 3-year to maturity bond that is callable at par assuming that the issue will be called if the price exceeds par, i.e., the bond is no longer call-protected. Assume that volatility of interest rates is 10%. [Show calibration step results and valuation results]

d. Based on your results from parts b. and c., what is the value of the call option embedded in the bond described in part c? What would happen to the value of the call option if the volatility of interest rates is assumed to be 15% instead of 10%? Why? By how much would the value of the option change?