Question: CMT model has the following payoff structure: ( 9 5 M / 2 ) x ( y _ cmt 7 % ) . Maturity of

CMT model has the following payoff structure: (95M/2) x (y_cmt 7%). Maturity of CMS is 2 years and payment frequency is semi-annual. Volatility of the interest rates is 12% annual. Treasury yield is 2%. Construct the binomial tree of rates and find the value of CMT.

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