Part 1: Fixed Income Options Suppose that you are given the following interest rate tree with...

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Part 1: Fixed Income Options Suppose that you are given the following interest rate tree with semi-annually compounded interest rates. Since the interest rates are semi-annually compounded, you should use I to discount rather than e-0.5r. 0.020202 t=0 -0.041596 0.020056 t = 0.5 -0.053025 0.031364 0.009932 t = 1 1. Using the tree above, calculate the price of a 1.5-year bond with a coupon rate of 3% (coupons paid semi-annually) and a face value of $100. 2. Calculate the price of a 1.5-year cap with a strike of 3% and a notional of $100. 3. What is the price of a 1.5-year floor with a strike of 3% and a notional of $100? Part 1: Fixed Income Options Suppose that you are given the following interest rate tree with semi-annually compounded interest rates. Since the interest rates are semi-annually compounded, you should use I to discount rather than e-0.5r. 0.020202 t=0 -0.041596 0.020056 t = 0.5 -0.053025 0.031364 0.009932 t = 1 1. Using the tree above, calculate the price of a 1.5-year bond with a coupon rate of 3% (coupons paid semi-annually) and a face value of $100. 2. Calculate the price of a 1.5-year cap with a strike of 3% and a notional of $100. 3. What is the price of a 1.5-year floor with a strike of 3% and a notional of $100?

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1 Using the tree above calculate the price of a 15year bond with a coupon rate of 3 coupons paid semiannually and a face value of 100 Answer The price of the 15year bond with a coupon rate of 3 and a ... View the full answer