Bond Calculation

Given a required return of 5.5%, the value of an option-free, 10%, semi-annual pay bond with 12 years to maturity is $1,391.52. An option pricing model is used to determine the value of the option to call this bond after the fifth year. The model-predicted value of the call option is $35.21. If the option-free bond was callable, its predicted value would be: A. $1,356.31 B. $1,391.52 C. $1,426.73 D. $1,139.52

1391.52 - 35.21 = 1356.31, A.