Excel Problem: The following problem should be done using the Excel program Binominal Bond Valuation.xls.

Suppose the current spot rate in Question 6 is at 5%. Using the estimated spot rate’s mean and variance calculated in Question 6.b determine the value of a five-year, 5% option-free bond (F = 100) using a binomial tree with monthly steps (h = 1/12). Determine the value of the bond given it is callable with a call price of 100.