Compute the initial price of a futures contract on the same

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Question 1

Background: please start by 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.

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

The price of this bond is 61.62

Background: Please use the same binomial model as the previous question.

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: EM133491888

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