1.Given the following information:

Current Interest Rate is 14%

There are 3 different scenarios:

Interest Rate can stay the same at 14% with probability 0.3

or increase to 16% with probability 0.23

or decrease to 12% with probability 0.47

Bond's information:

Maturity is 24 years

Coupon is 14% , paid annually

Par value is $1,000

Call Price is $1,112

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

B.If there is a call protection period of 6 year(s), the price of the callable bond is $______.

2.The term structure of interest rates is flat at 5.1 %, but rates could change immediately to 7.1 % or 3.1 % with probability of 0.46 and 0.54 , respectively, and stay at that level forever. You purchase a putable bond with 12 years to maturity and 5.1 % coupon paid annually. The putable bond can be put at $ 96 immediately.

Keep ALL calculations rounded to 4 decimal places. Only round what you enter in the blank to 2 decimal places

A.The price of the putable bond is $______.

B.The price of the embedded put option is $______.

C.The yeild spread of the putable bond over an otherwise straight bond is ______%