Question: Pricing bonds using binomial trees Price a 3-year bond with an annual coupon of 7%. Assume the following for a 3-period binomial tree i 0

Pricing bonds using binomial trees

Price a 3-year bond with an annual coupon of 7%.

Assume the following for a 3-period binomial tree

i0 = 3%, i1H = 6%, i1L = 4%, i2HH = 10%, i2HL = 7%, i2LL = 5%

1. What is B2HH? (Be precise to 3 decimals.)

2. What is B1H? (Be precise to 3 decimals.)

3. What is B1L? (Be precise to 3 decimals.)

4. What is B0? (Be precise to 3 decimals.)

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