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Problem 1-10 are referred to the four-period Ho-Lee interest rate model. The interest rate at time n is 1. Construct the four-period interest rate binomial

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Problem 1-10 are referred to the four-period Ho-Lee interest rate model. The interest rate at time n is 1. Construct the four-period interest rate binomial tree 2. Assume the risk-neutral probabilities are given belon Determine the transition probabilities and label them on the tree. 3. Calculate the discount factors Di. Da. Ds and Ds. Construct a table similar to the one on the top of Page 166. 4. Calculate the zero-coupon bond prices Bo,m, m = 1, 2, 3, 4, and Bs,mlen wn), m 2.3.4, n = 1.... ,m-1 (totally 26 bond prices). 5. Caleulate the time zero price of the four-period interest rate cap with payments Co at times n 1, 2, 3, 4 where C, = (R,-,-0.07)" 6. Calculate the time zero price of the four-period interest rate loor with payments F at times 1, 2, 3, 4 where F,-(0.07-R,-1)+. 7. Determine the time zero price of the four-period interest rate swap with payments Su at times n-I,2, 3, 4 where Sn = 0.07-R,-1. 8. Compute the 4-forward measure Pf.Construct a table similar to the one on Page 167 Then determine the Pe transition probabilties and label them on the interest rate tree 9. Calculate either the interest rate cap in Problem 5 or the interest rate Boor in Problem 6 using the 4-forward measure p4 10. Determine the time zero price of the four-period coupon-paying bond with payments C-10. G-10. C. 10 and C,-110 at times n = 1.2. 3.4. respectively. Problem 1-10 are referred to the four-period Ho-Lee interest rate model. The interest rate at time n is 1. Construct the four-period interest rate binomial tree 2. Assume the risk-neutral probabilities are given belon Determine the transition probabilities and label them on the tree. 3. Calculate the discount factors Di. Da. Ds and Ds. Construct a table similar to the one on the top of Page 166. 4. Calculate the zero-coupon bond prices Bo,m, m = 1, 2, 3, 4, and Bs,mlen wn), m 2.3.4, n = 1.... ,m-1 (totally 26 bond prices). 5. Caleulate the time zero price of the four-period interest rate cap with payments Co at times n 1, 2, 3, 4 where C, = (R,-,-0.07)" 6. Calculate the time zero price of the four-period interest rate loor with payments F at times 1, 2, 3, 4 where F,-(0.07-R,-1)+. 7. Determine the time zero price of the four-period interest rate swap with payments Su at times n-I,2, 3, 4 where Sn = 0.07-R,-1. 8. Compute the 4-forward measure Pf.Construct a table similar to the one on Page 167 Then determine the Pe transition probabilties and label them on the interest rate tree 9. Calculate either the interest rate cap in Problem 5 or the interest rate Boor in Problem 6 using the 4-forward measure p4 10. Determine the time zero price of the four-period coupon-paying bond with payments C-10. G-10. C. 10 and C,-110 at times n = 1.2. 3.4. respectively

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