Question: 3) a) Construct an interest rate tree according to the method presented in class with step size h = 0.5, volatility = 0.2, drift

3) a) Construct an interest rate tree according to the method presented in class with step size h 0.5 volatility o 0.2, drift m 0.1, and initial 0.5-year rate r 8%. The tree should give short rates out to time 0.5 b) What is the time 0 price of $1 par off a zero maturing at time 0.5? c) What is the time 0 price of $1 par of a zero maturing at time 1?

3) a) Construct an interest rate tree according to the method presented in class with step size h = 0.5, volatility = 0.2, drift m = 0.1, and initial 0.5-year rate r = 8%. The tree should give short rates out to time 0.5. b) What is the time 0 price of $1 par of a zero maturing at time 0.5? c) What is the time 0 price of $1 par of a zero maturing at time 1?

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