Please do exercise #2. Exercise #1 and equation 8.49 were provided for context. Thank you.

1. Suppose that a bond model uses the bond volatility o(t, T) = T - t. Use equation (8.49) to show that a In P 12 r(t) = (0, t) + B(t) aT 2 2. Show that the bond model in Exercise 1 has the following yield curve at time t: -1 POT) tT Y(t) In - B(t) T-t P(0, 1) 2 Hint: Y = - In P/(1 t). Bond Price 1 P(t, T) = P(OT) -exp P(0, t) ( 1,40(6.1) o(6,7)}ds + [f06, 7) 0(5, 1)}dB(6) 2 (8.49) 1. Suppose that a bond model uses the bond volatility o(t, T) = T - t. Use equation (8.49) to show that a In P 12 r(t) = (0, t) + B(t) aT 2 2. Show that the bond model in Exercise 1 has the following yield curve at time t: -1 POT) tT Y(t) In - B(t) T-t P(0, 1) 2 Hint: Y = - In P/(1 t). Bond Price 1 P(t, T) = P(OT) -exp P(0, t) ( 1,40(6.1) o(6,7)}ds + [f06, 7) 0(5, 1)}dB(6) 2 (8.49)