If the yield volatility for a five-year put option on a bond maturing in 10 years time
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If the yield volatility for a five-year put option on a bond maturing in 10 years time is specified as 22%, how should the option be valued? Assume that, based on today's interest rates, the modified duration of the bond at the maturity of the option will be 4.2 years and the forward yield on the bond is 7%.
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