Group Discussion Question 10.1 Assuming an interest rate volatility of 10% for the 1-year rate, the binomial interest rate tree for valuing a bond with a maturity of up to three years is shown below: 9.603% 8.481% 7.5% 7.862% 6.944% 6.437 A. Group Discussion Question 10.1 Using the spot rates given below, what is the arbitrage-free value of a 3-year 8.5% coupon issue of Inc. Net Company? Maturity (years) Spot rate (%) 7.500 7.604 2 7.710 B C Using the binomial tree, determine the value of an 8.5% 3-year option-free bond. Suppose that the 3-year 8.5% coupon issue is callable starting in Year 1 at par (i.e., $100). What is the value of this 3-year 8.5% coupon callable issue? What is the value of the embedded call option? D Group Discussion Question 10.1 Assuming an interest rate volatility of 10% for the 1-year rate, the binomial interest rate tree for valuing a bond with a maturity of up to three years is shown below: 9.603% 8.481% 7.5% 7.862% 6.944% 6.437 A. Group Discussion Question 10.1 Using the spot rates given below, what is the arbitrage-free value of a 3-year 8.5% coupon issue of Inc. Net Company? Maturity (years) Spot rate (%) 7.500 7.604 2 7.710 B C Using the binomial tree, determine the value of an 8.5% 3-year option-free bond. Suppose that the 3-year 8.5% coupon issue is callable starting in Year 1 at par (i.e., $100). What is the value of this 3-year 8.5% coupon callable issue? What is the value of the embedded call option? D