Questions 1 and 2should be answered by building ann =n=10-period binomial model for the short-rate,r_{i,j}ri,j. The lattice parameters are:r_{0,0} = 5% r0,0=5%,u = 1.1u=1.1,d = 0.9d=0.9andq =1-q = 1/2q=1q=1/2.

Question 1

Quiz instructions

Compute the price of a zero-coupon bond (ZCB) that matures at timet = 10t=10and that has face value 100.

Submission Guideline:Give your answer rounded to 2 decimal places. For example, if you compute the answer to be 73.2367%, submit 73.24.

Question 2

Quiz instructions

Compute the price of a forward contract on the same ZCB of the previous question where the forward contract matures at timet = 4t=4.

Submission Guideline:Give your answer rounded to 2 decimal places. For example, if you compute the answer to be 73.2367%, submit 73.24.