Question: Based on the binomial tree below which is based on a 7% coupon bond with 10% interest rate volatility, illustrate the steps you would use

Based on the binomial tree below which is based on a 7% coupon bond with 10% interest rate volatility, illustrate the steps you would use to derive the value of the bond at time 0, and compute the value.

0 2 3 node rate 100.000000 coupon 7.000000 r23uu 0.096030 8.000000 r12u und 0.084810 100.000000 8.000000 8.000000 r23ud 0.075000 0.078620 8.000000 r12d udd 0.069440 100.000000 8.000000 8.000000 r23dd 0.064370 8.000000\f

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