Question: In a binomial interest rate tree model, assume that the six-month rate process starts on date 0 (1-0) at 5% and then increases or decreases

In a binomial interest rate tree model, assume that the six-month

In a binomial interest rate tree model, assume that the six-month rate process starts on date 0 (1-0) at 5% and then increases or decreases by 100 basis points every six months. On date 0. the prices of a six-month zero (A) and a 1-year zero (B) are 97.5610 and 95.0908 respectively. a) Find the risk-neutral probability of an up move on date 0 for the six-month rate process over the next 6-month. (4pt) b) Find the price of the 1-year zero (B) in the down state of the binomial tree on date 1 (t-1), 3pt)

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