Final answer:
The price of the non-puttable bond is $101.
Step-by-step explanation:
A non-puttable bond refers to a bond that does not have a put option which allows the bondholder to sell the bond back to the issuer before its maturity date. The price of a non-puttable bond can be calculated by subtracting the value of the put option from the price of the puttable bond. In this case, the price of the non-puttable bond would be $104 - $3 = $101. The price of a non-puttable bond can be calculated by subtracting the value of the put option from the price of the puttable bond. Given that the price of the puttable bond is $104 and the value of the put option is $3, the price of the non-puttable bond would be $104 - $3, which equals $101. Bonds are often priced based on their features, and a put option provides additional value, allowing the holder to sell the bond back to the issuer at a predetermined price. Without this feature, the bond is worth less. This calculation tells us that without the put option, investors are willing to pay $101 for the bond. The put option adds $3 of value, making the total price investors are willing to pay $104 for the puttable bond.