Compute the initial price of a futures contract

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building an n = 10 - period binomial model for the short - rate, ri,j . The lattice parameters are: r0,0 = 5%, u = 1.1, d = 0.9 and q = 1 - q = 1/2.

Question 1) Compute the price of a zero - coupon bond (ZCB) that matures at time t = 10 and that has face value 100.

Question 2) Compute the price of a forward contract on the same ZCB of the previous question where the forward contract matures at time t = 4.

Question 3) Compute the initial price of a futures contract on the same ZCB of the previous two questions. The futures contract has an expiration of t = 4.

Reference no: EM132582104

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