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The on-the-run issue for ABC Company is shown below: Using the bootstrapping methodology, the spot rates are: Assuming an interest rate volatility of 10% for
The on-the-run issue for ABC Company is shown below: Using the bootstrapping methodology, the spot rates are: Assuming an interest rate volatility of 10% for the 1 -year rate, the binomial interest rate tree for valuing a bond with maturity of up to three years is shown below: c) Using the spot rate given above, what is the arbitrage-free value of a 3-year 8.5% coupon issue of ABC Company
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