What is the issue price of a puttable note, with a par put after one year on a 2year annual pay 5% coupon note, given that the interest rate at present is 5.2% and in one year wil be 5.5% or 4.7%.

a) 99.895

b) 99.946

c) 100.27

This is a Q off schweser 2012 mock (afternoon Q 44) but i didn’t understand the answer which was B. Please can someone clarify how the answer is reached?

Thanks