LTHUSV=[(100.917+10)/1.085+(101.852+10)/1.085]/2= 102.6590QUESTION #...

1,L

Thus

V

=[(100.917+10)/1.085+(101.852+10)/1.085]/2= 102.659

0

Question #33 of 38

Question ID: 472690

A 3-year, 3% annual pay, $100 par bond is valued using pathwise valuation. The interest rate paths are provided below:

Path

Year 1

Year 2

Year 3

1

2%

2.8050%

4.0787%

2

2%

2.8050%

3.0216%

3

2%

2.0780%

3.0216%

4

2%

2.0780%

2.2384%

The value of the bond in path 4 is closest to:

$100.02

ᅞ

A)

ᅞ

B)

$101.88

$102.58

ᅚ

C)

Explanation

Path 4 value =

Question #34 of 38

Question ID: 472603

Sam Roit, CFA, has collected the following information on the par rate curve, spot rates, and forward rates to generate a

binomial interest rate tree consistent with this data.

Maturity

Par Rate

Spot Rate

1

5%

5.000%

2

6%

6.030%

3

7%

7.097%

The binomial tree generated is shown below (one year forward rates) assuming a volatility level of 10%:

0

1

2

5%

7.7099%

C

A

9.2625%

B

Riot also generated another tree using the same spot rates but this time assuming a volatility level of 20% as shown below:

5%

8.9480%

13.8180%