7. Construct a four-period, three-step (eight terminal node) binomial interest rate tree where the initial interest rate
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7. Construct a four-period, three-step (eight terminal node) binomial interest rate tree where the initial interest rate is 10% and rates can move up or down by 2%; model your tree after that in Figure 3. Compute prices and yields for 1-, 2-, 3-, and 4-year bonds. Do yields decline with maturity? Why?
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Derivatives Markets Pearson New International Edition
ISBN: 978-1292021256
3rd Edition
Authors: Robert L. Mcdonald
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