Question: You observe the following set of spot rates: Time Period 3 Rate 2.250 0 2.7500 3.1000 You also estimate that future interest rate volatility

You observe the following set of spot rates: Time Period 3 Rate

2.250 0 2.7500 3.1000 You also estimate that future interest rate volatility

You observe the following set of spot rates: Time Period 3 Rate 2.250 0 2.7500 3.1000 You also estimate that future interest rate volatility is 10%, which leads to the following binomial interest rate tree: 4.647% 3.5930% 1250/0 3.8046 2.9417% 3.115%

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