Question: ( e ) [ 6 points ] The current index level is unknown, the risk - free rate is r = 5 % per annum

(e)[6 points] The current index level is unknown, the risk-free rate is r =5% per annum in continuous compounding, volatility of the index is 15% per annum. If the principal is $10,000. Determine the value of the 5-year market-linked CD according to an option-based model and show that the value is irrelevant to the current value of the index.

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