Suppose that the Johnson family has the option of purchasing two bonds.
• Bond A is a $4000 10% 10 year bond paying annual coupons with redemption value
$2000, which can be purchased at a premium for $3000. This bond can optionally be
sold at the end of the 5th year for 6,000.
• Bond B is a $4000 10% 10 year bond paying annual coupons with redemption value
$3000, which can be purchased at a discount for $2000. Suppose further that this
bond has a lockout period of 5 years, after which a put option can be placed at the
end of years {6, 7, 8, 9} for put premium of $150.