Question: Question 5 We are working with the Black-Derman-Toy binomial tree model. Assume a constant short rate volatility each period at 20%. Construct a short rate

Question 5 We are working with the Black-Derman-Toy binomial tree model. Assume a constant short rate volatility each period at 20%. Construct a short rate tree given the following: To,0 = 10%, 71,0 = 8%, and T2,0 = 6.4%. rij denotes the short rate for the ith period and the jth node. Assume each period is one year. Question 7 Find the price of an European call option to buy the 3-period to maturity zero coupon bond using the short rate tree from Question 5. The option matures in 2 periods with a strike price of 0.9

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