1. Assume all interest rates below are per annum and are compounded semiannually. Suppose the time now is 0, and we have the 6-month spot rate is 7%; the 1-year spot rate is 7.1%. Assume that 6 months from now, the 6-month rate will be either 7.5% or 6.5% Suppose a zero-coupon bond with face value $100 matures in one year. Con- sider a European call option, maturing in 6 months, that gives the buyer the right to buy the zero-coupon bond for the strike price at $96.5. Using the risk-neutral valuation approach, find the price of the call option today. Justify your answer by showing all the calculations carefully. You may ex- press all prices in 2 decimal places, and risk-neutral probabilities in 4 decimal places. 1. Assume all interest rates below are per annum and are compounded semiannually. Suppose the time now is 0, and we have the 6-month spot rate is 7%; the 1-year spot rate is 7.1%. Assume that 6 months from now, the 6-month rate will be either 7.5% or 6.5% Suppose a zero-coupon bond with face value $100 matures in one year. Con- sider a European call option, maturing in 6 months, that gives the buyer the right to buy the zero-coupon bond for the strike price at $96.5. Using the risk-neutral valuation approach, find the price of the call option today. Justify your answer by showing all the calculations carefully. You may ex- press all prices in 2 decimal places, and risk-neutral probabilities in 4 decimal places