Find the value of a 2-year zero coupon bond

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1. Find the value of a 2-year zero coupon bond. Assume a face value of $1000. Assume current one year rates are 8.1%, and that in one year rates will be either 9.1% or 7.3% with equal probability.

2. Find the drift in a 2 year Ho-Lee tree if the one year rate is 7%, the volatility is 1% and the 2 year rate is 7.5%

3. Assume current one year rates are 5.4%, and that in one year rates will be either 6.6% or 4.6% with equal probability. Find the 2-year zero coupon interest rate consistent with this tree.

4. Which of the following interest rate models permit negative interest rates?(Black-Derman-Toy Model,Vasicek Model,Cox-Ingersoll-Ross Model,Ho-Lee Model)

Reference no: EM133068624

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