Given an ABC convertible bond with F = $1,000, maturity of three periods, CR

= 10, current stock price of $100, and u = 1.1, d = .95, and q = .5 on the stock:

a. Calculate the value of the bond using a binomial tree of stock prices. Assume no call on the bond and a flat yield curve at 10% that is not expected to change.

b. Calculate the value of the bond using a binomial tree of stock prices. Assume the bond is callable at CP = $1,200 and a flat yield curve at 10% that is not expected to change.