This question has been posted multiple times now and continues to get incorrect answers.

Given the following information:

Current Interest Rate is 3%

There are 3 different scenarios:

Interest Rate can stay the same at 3% with probability 0.15

or increase to 5% with probability 0.17

or decrease to 1% with probability 0.68

Bond's information:

Maturity is 23 years

Coupon is 3% , paid annually

Par value is $1,000

Call Price is $1,019

There is a call protection period of 14 years.

a. At what interest rate will the bond be called on the first call date?

ANSWER: 1% - I DO NOT NEED YOU TO SOLVE THIS PART

b. what is the price of the callable bond? (in 2 decimal places)

WRONG ANSWERS: 1138.04, 1124, 1019