Question
The current 6-month short rate sits at 3% per year. The mean growth rate of the short rate is 3%; the volatility of short rate
The current 6-month short rate sits at 3% per year. The mean growth rate of the short rate is 3%; the volatility of short rate growth is 25%.
a) What would be the 6-month short rate in the up state at time t=0.5 (units: % per year)?
b) What would be the 6-month short rate in the down state at time t=0.5 (units: % per year)?
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Financial management theory and practice
Authors: Eugene F. Brigham and Michael C. Ehrhardt
12th Edition
978-0030243998, 30243998, 324422695, 978-0324422696
