Construct a four-period, three-step (eight terminal node) binomial interest rate tree where the initial interest rate is

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Construct a four-period, three-step (eight terminal node) binomial interest rate tree where the initial interest rate is 10% and rates can move up or down by 2%; model your tree after that in Figure 25.3. Compute prices and yields for 1-, 2-, 3-, and 4-year bonds. Do yields decline with maturity? Why?
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Derivatives Markets

ISBN: 978-0321543080

4th edition

Authors: Rober L. Macdonald

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