1) Consider the following two-period binomial tree of the one-year interest rate: 5% 4% 3% 3% 2% 1% t=0 t=1 t=2 In t = 0 zero-coupon bonds with maturity in t = 1, t = 2, and t = 3 are traded. The probability of each up-movement in the tree is 50%. The 2-year zero-coupon bond has the price B.(0, 2) = 94.00. Consider the following option: payoff at t=1 = 100 x max(r 3%,0), where ri is the one-year interest rate at t=1. Compute the value of this option at t=0. (6 marks) 1) Consider the following two-period binomial tree of the one-year interest rate: 5% 4% 3% 3% 2% 1% t=0 t=1 t=2 In t = 0 zero-coupon bonds with maturity in t = 1, t = 2, and t = 3 are traded. The probability of each up-movement in the tree is 50%. The 2-year zero-coupon bond has the price B.(0, 2) = 94.00. Consider the following option: payoff at t=1 = 100 x max(r 3%,0), where ri is the one-year interest rate at t=1. Compute the value of this option at t=0. (6 marks)