89QUESTION #25 OF 38 QUESTION ID

99.89

Question ID: 472601

Tim Brospack is generating a binomial interest rate tree assuming a volatility of 15%. Current 1-year spot rate is 5%. The 1-

year forward rate in the second year is either a low estimate of 5.250% or a high estimate of 7.087%. The middle 1-year

forward rate in year three is estimated at 6.25%. The upper node 1-year forward rate in year three is closest to:

A)