In each of the following cases, identify the buyer and seller of the option, how the value of the option is indicated, and when (in what interest rate environment) the option will be exercised:
a. A bank buys a five year maturity GNMA bond that is callable at par after one year, yielding 6.88 percent. The matched duration zero coupon Treasury rate is 6.11 percent.
b. A bank buys an FHLB pass through MBS at par yielding 7.47 percent. The matched- duration zero coupon Treasury rate is 6.48 percent.