1.Consider a bond with the following characteristics: 30 years to maturity, 9.90% coupon rate (equal to current interest rate), interest paid semi-annually, $1,000 par value, $1,017 call price, and no call protection. If rates change to 4.50% will the company gain from calling the bond? Assume that transaction cost is $170 .

NOTICE:Round ALL calculations to 4 decimal places. Only round what you input in the blank to 2 decimal places.If you get 1.2345 then write 1.23.

The PV of Liability is $________.

The Gain/Loss from calling the bond is $____________. If negative (-1) then write (-1).

Would you "call" or "no call" ?___________.

2.Given the following information:

Current Interest Rate is 3%

There are 3 different scenarios:

Interest Rate can stay the same at 3% with probability 0.15

or increase to 5% with probability 0.17

or decrease to 1% with probability 0.68

Bond's information:

Maturity is 23 years

Coupon is 3% , paid annually

Par value is $1,000

Call Price is $1,019

If the bond can be called immediately, the price of the callable bond is $_________.

If there is a call protection period of 14 year(s), the price of the callable bond is $__________.

NOTICE: Round all the intermediate calculations to 4 decimal places. When you get to the final answer, round it up to 2 decimal places.If you get 1.2345 then write 1.23.