Question: At one point, certain U.S. Treasury bonds were callable. Consider the prices in the following three Treasury issues as of May 15, 2017: 05/15/2020 6.45

At one point, certain U.S. Treasury bonds were callable. Consider the prices in the following three Treasury issues as of May 15, 2017:

05/15/2020 6.45 108.68750 108.75000 .31250 3.360
05/15/2020 7.50 109.21875 109.28125 .09375 4.180
05/15/2020 8.15 114.28125 114.46875 .46875 3.070

The bond in the middle is callable in February 2018. What is the implied value of the call feature? Assume a par value of $1,000. (Hint: Is there a way to combine the two noncallable issues to create an issue that has the same coupon as the callable bond?) Show how to solve with financial calculator.

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