Question

Given this Binomial interest rate tree with volatility, please calculate the price of the CALLABLE BOND.
Use the Backward Induction process we have reviewed in class.
The below are 1-year forward rates. Ex: 2.96% is the 1y rate, 2-years forward.
Assume 50%/50% probability of an up or down move in rates

Bond Coupon = 2.35% pays annually; Bond Matures in Year 3; Callable in Years 1 and 2 at $100
Par Value = $100; Assume ANNUAL COMPOUNDING

Year 0	Year 1	Year 2
		2.96%
	2.64%
2.00%		2.64%
	2.16%
		2.32%

Answer 1