Questions 1 and 2 should be answered by building and calibrating a 10-period Black-Derman-Toy model for the short-rate, ri , jri,j . You may assume that the term- structure of interest rates observed in the market place is: Period 1 2 3 4 5 6 7 8 9 10 Spot Rate 3.0% 3.1% 3.2% 3.3% 3.4% 3.5% 3.55% 3.6% 3.65% 3.7% As in the video modules, these interest rates assume per- period compounding so that, for example, the market-price of a zero-coupon bond that matures in period 6 6 is Z 0 6 = 1 0 0/ (1 + .035 ) = 81 .35 2 06 =100/(1+.035) 6 =81.35 assuming a face value of 100. Questions 3-5 refer to the material on defaultable bonds and credit-default swaps (CDS)