Excel Problems: The Excel program called “Binomial Bond Valuation” can be downloaded from the Web site that is associated with this book. These programs can be used to price callable and putable bonds based on u and d inputs or mean and variance values (discussed in Chapter 15). This problem and Problem 13 should be done using the programs.

Given a binomial interest rate tree with the following features: S0 = 6%, length of the tree = .5 years, and upward and downward parameters for .5 years of u =

1.0488 and d = .9747 and q = .5, determine the values of the following bonds:

a. The value of an option-free bond with maturity of 10 years, annual coupon of C = 6, semiannual payments, and F = 100.

b. The value of a callable bond with maturity of 10 years, annual coupon of C = 6, semiannual payments, F = 100, and call price of 100.

c. The value of a putable bond with maturity of 10 years, annual coupon of C = 6, semiannual payments, F = 100, and put price of 100.

d. The value of an option-free bond with maturity of 20 years, annual coupon of C = 6, semiannual payments, and F = 100.

e. The value of a callable bond with maturity of 20 years, annual coupon of C = 6, semiannual payments, F = 100, and call price of 100.

f. The value of a putable bond with maturity of 20 years, annual coupon of C = 6, semiannual payments, F = 100, and put price of 100.