Using the calibrated binomial tree in Exhibit 18-12, answer the following two questions:

1. What is the value of a 3% bond that matures in 3 years and is callable in year 1 at 102% of face amount and callable in year 2 at 101% of face amount?
2. What is the value of a 5% bond that matures in 3 years and is not callable but is putable in year 2 at 99% of face amount?

Exhibit 18-12 1-Year Forward Rates for Year 2 Using the 3-Year 4.5% On-the-Run Issue V = 97.886 C = 4.50 NAH2,HH = 6.757% V = 98.074 C = 4.50 N. VH1,H 4.976% = V = 100 C=0 r = 3.500% V = 99.022 C = 4.50 N NHL 2,44 2,HL = 5.532% V = 99.926 C = 4.50 1,2 = 4.074% V = 99.972 C = 4.50 2,LL = 4.530% NLL Exhibit 18-12 1-Year Forward Rates for Year 2 Using the 3-Year 4.5% On-the-Run Issue V = 97.886 C = 4.50 NAH2,HH = 6.757% V = 98.074 C = 4.50 N. VH1,H 4.976% = V = 100 C=0 r = 3.500% V = 99.022 C = 4.50 N NHL 2,44 2,HL = 5.532% V = 99.926 C = 4.50 1,2 = 4.074% V = 99.972 C = 4.50 2,LL = 4.530% NLL