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Current price of the 6-month call option

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All interest rates are annual interest rates with semi-annual compounding.

All coupon rates are annual rates paid semi-annually.

1) Consider a 1-year zero-coupon bond with $1,000 face value. Assume today's 6-month forward rate is 6% and in six months the new 6-month forward rate can be either 5% or 7%. Assume also that the current price of the 6-month call option with a strike price of $970 on this bond is $2.17. Find the 1-year spot rate today. Keep at least 4 decimal digits

Reference no: EM132865328

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