Question: After building a binomial interest rate tree, you have identified the following possible interest rate paths: Path y0y1 y1y1 y2y1 1 2.98 3.18 3.81 2

After building a binomial interest rate tree, you have identified the following possible interest rate paths:

Path y0y1 y1y1 y2y1
1 2.98 3.18 3.81
2 2.98 3.18 2.54
3 2.98 2.16 2.54
4 2.98 2.16 1.88

Using pathwise valuation, what is the proper price for a 3 year 3.79% coupon bond?

Correct answer: 102.87

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