Use the forward equation to find the spot rate curve for the lattice constructed in Exercise 1.
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Use the forward equation to find the spot rate curve for the lattice constructed in Exercise 1.
Data from Exercises 1
Construct a short rate lattice for periods (years) 0 through 9 with an initial rate of \(6 \%\) and with successive rates determined by a multiplicative factor of either \(u=1.2\) or \(d=9\). Assign the risk-neutral probabilities to be .5 .
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