Problem 5.Consider a financial model where one can borrow and lend money at year i and up to year i +1 at the interest rate R(i, i+1). Consider the float note which has notional N = $1000, maturity T = 20 years and, in addition to the notional payment at maturity, pays coupon yearly. The value of the coupon paid at time i +1 is computed at time i and is given by R(i, i+1)N. Compute Vo, the arbitrage-free price of the note at its issue time. Remark/hint: even though this problem involves time-varying interest rates, at least one way of solving this problem relies solely on the idea of replication. Problem 5.Consider a financial model where one can borrow and lend money at year i and up to year i +1 at the interest rate R(i, i+1). Consider the float note which has notional N = $1000, maturity T = 20 years and, in addition to the notional payment at maturity, pays coupon yearly. The value of the coupon paid at time i +1 is computed at time i and is given by R(i, i+1)N. Compute Vo, the arbitrage-free price of the note at its issue time. Remark/hint: even though this problem involves time-varying interest rates, at least one way of solving this problem relies solely on the idea of replication