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2. (10 points) Valuation of option-free bond using pathwise valuation. Samuel Favre wants to value a three-year, 3% annual-pay Treasury bond. The interest rate tree

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2. (10 points) Valuation of option-free bond using pathwise valuation. Samuel Favre wants to value a three-year, 3% annual-pay Treasury bond. The interest rate tree is shown below. Favre wants to use a pathwise valuation approach to compute the value of the $100 par option-free bond. (Hint: list path-specified rate and calculate corresponding value) One-period Forward Rate in Year 0 1 3% 5.7883% 3.88% 2 10.7383% 7.1981% 4.8250%

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