Question: Problem Solving Question [(a)~(e)] period 1=0 i=1 time (in years) t=0 t = 0.5 (1,u) = 5% To = 3% (1,d) = 2% Consider the

Problem Solving Question [(a)~(e)] period 1=0 i=1 time (in years) t=0

Problem Solving Question [(a)~(e)] period 1=0 i=1 time (in years) t=0 t = 0.5 (1,u) = 5% To = 3% (1,d) = 2% Consider the interest rate tree in the above Table. (continuously compounded) Po(2)=97 (d) Consider an option with payoff Option payoff at time i = 1 is 100 x max (r - 3%, 0) Compute the value at time i = 0 of the option. Please write your answer in three decimal places. 1 with prob. p = 1/2 with prob. 1-p= 1/2 Problem Solving Question [(a)~(e)] period 1=0 i=1 time (in years) t=0 t = 0.5 (1,u) = 5% To = 3% (1,d) = 2% Consider the interest rate tree in the above Table. (continuously compounded) Po(2)=97 (d) Consider an option with payoff Option payoff at time i = 1 is 100 x max (r - 3%, 0) Compute the value at time i = 0 of the option. Please write your answer in three decimal places. 1 with prob. p = 1/2 with prob. 1-p= 1/2

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