Winters AM is a fixed income management firm that invests in a wide variety of debt instruments. Lauren Winters, CFA is focusing on bonds with embedded optionality. She builds the following binomial IR tree based on 10% vol. Her goal is to value a new annual pay 4.5% bond, callable at 100.5 and maturing in 3 years with a par value of $100.

Q43. The value of the bond is closest to:

a) 102.26

b) 102.76

c) 102.82

can someone please talk me through this one as I am lost! thanks

Yeah you need to post the IR tree rates to calculate it. But as youâ€™re valuing a callable bond, whenever the calculated price at a node exceeds the call price of 100.50, then use the call price.

The Binomial tree has no rates in it, just the 5 blank boxes showing the 2-period binomial tree. This is a question from a 2019 CFA Society Boston mock if that helps.

is it an error in the question, or are we missing something obvious? i can email you the full question if anyone is interested