O Problem Solving Question [(a)~(e)] period 1=0 i=1 time (in years) t=0 t = 0.5 (1,u) = 5% with prob. p = 1/2 To = 3% (1,d) = 2% with prob. 1-p= 1/2 Consider the interest rate tree in the above Table. (continuously compounded) (b) The 1-year Treasury bill is trading at Po(2)=97. What is the continuously compounded forward rate for the periods i = 1 to i = 2? Please answer percentage number with two decimal places. Don't put % in the end. (e.g. if forward rate= 0.0420= 4.20%, then put 4.20 as an answer.) 4 O Problem Solving Question [(a)~(e)] period 1=0 i=1 time (in years) t=0 t = 0.5 (1,u) = 5% with prob. p = 1/2 To = 3% (1,d) = 2% with prob. 1-p= 1/2 Consider the interest rate tree in the above Table. (continuously compounded) (b) The 1-year Treasury bill is trading at Po(2)=97. What is the continuously compounded forward rate for the periods i = 1 to i = 2? Please answer percentage number with two decimal places. Don't put % in the end. (e.g. if forward rate= 0.0420= 4.20%, then put 4.20 as an answer.) 4