Consider the prices in the following three Treasury issues as of February 24, 2010: The bond in

Question:

Consider the prices in the following three Treasury issues as of February 24, 2010:

The bond in the middle is callable in February 2011. What is the implied value of the call feature? Is there a way to combine the two noncallable issues to create an issue that has the same coupon as the callable bond?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...