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We have a default-free, 3-year 4.08% annual coupon bond callable at par 1 year and 2 years from now. Suppose interest volatility is 10% so
We have a default-free, 3-year 4.08% annual coupon bond callable at par 1 year and 2 years from now. Suppose interest volatility is 10% so that we can calibrate the following binomial interest rate tree.
What is the price of the callable bond?
Round your answer to 2 decimal places. For example, if your answer is 25.689, please write down 25.69.
| Year 0 | Year 1 | Year 2 |
| 7.4832% | ||
| 5.7678% | ||
| 4.40% | 5.5437% | |
| 4.2729% | ||
| 4.1069% |
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