7. You hold a 10 million face value zero-coupon bond with 2 years to maturity. Next year you will have to sell the bond (company policy to limit fixed income assets). You expect interest rates to be either 4.17% or 8.67% with equal probability of occurrence. To ensure that you will receive at least 9.5 million at the end of year 1, you buy a put option on the bond (at time 0) with an exercise price of 9.5 million at year 1. Use the binomial tree to calculate the cost of hedging. Yield on 1-year discount bonds is 8%. 7. You hold a 10 million face value zero-coupon bond with 2 years to maturity. Next year you will have to sell the bond (company policy to limit fixed income assets). You expect interest rates to be either 4.17% or 8.67% with equal probability of occurrence. To ensure that you will receive at least 9.5 million at the end of year 1, you buy a put option on the bond (at time 0) with an exercise price of 9.5 million at year 1. Use the binomial tree to calculate the cost of hedging. Yield on 1-year discount bonds is 8%