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1. Assume an economy where - One period is one year. - The one year short term interest rate from time n to time n+1 is rn. - The rate evolves via a stochastic process {rn}n=0n=2, where: r00.02P(rn+12rn]21P[rn+121)! - Consider now a xero-coupen bond that matures in 2 -yoars with common fice and redemption value F100. - Consder American Call Options on this bond that expire in 2 years with strikn K97. - Denoto Bn and CnA as the bond and call option valien at time n. respectively. Calculate - tho initinal bond prico B0 (40 pts) and - the initial Atacriean Call Option price CA (60 pts)