Construct an interest rate tree according to the method

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Reference no: EM131071014

a) Construct an interest rate tree according to the method presented in class with step size h = 0.5, volatility ? = 0.2, drift m = 0.1, and initial 0.5-year rate r = 8%. The tree should give short rates out to time 0.5.

b) What is the time 0 price of $1 par of a zero maturing at time 0.5?

c) What is the time 0 price of $1 par of a zero maturing at time 1?

Please explain in detail

Reference no: EM131071014

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