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Homework answers / question archive / The current one year spot rate is 10%, but the rates can change in the future

The current one year spot rate is 10%, but the rates can change in the future.

You estimate that u = 0.9 and d = 0.4.

Now, Value a straight bond with the following features: it matures in three years, has no default risk, pays a 10% coupon each year, and has $1000 face value.

-Assuming that the bond is callable, and the call price is $1010 per bond.

Calculate the price of the callable bond and the value of the call option alone.

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