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Construct a three-year binomial interest rate tree

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Suppose the spot rates for the next three years are 4.2%, 4.6% and 4.8% respectively. The one year forward rates are 4.2%, 5.0015% and 5.2012%, respectively as well. Using a value of 10% for the volatility of the one year forward rate, construct a three-year binomial interest rate tree with one year forward rates.

Reference no: EM131201591

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