Based on Exhibits 2 and 3 and using Method 1, the amount (in absolute terms)

by which the Hutto- Barkley corporate bond is mispriced is closest to:

		0.3368 per 100 of par value.
		0.4682 per 100 of par value.
		0.5156 per 100 of par value.
		0.5556 per 100 of par value.

Lastly, Tatton identifies two mispriced Swiss bonds, Bond X, a three-year bond, and Bond Y, a five-year bond. Both are annual-pay bonds with a coupon rate of 6%. To calculate the bonds' values, Tatton devises the first three years of the interest rate lognormal tree presented in Exhibit 4 using historical interest rate volatility data. Tatton considers how this data would change if implied volatility, which is higher than historical volatility, were used instead. Exhibit 4 Interest Rate Tree; Forward Rates Based on Swiss Market Time 0 Time 2 6% 1%