Question: The on-the-run issue for ABC Company is shown below: Using the bootstrapping methodology, the spot rates are: Assuming an interest rate volatility of 10% for

The on-the-run issue for ABC Company is shown below: Using the bootstrapping methodology, the spot rates are: Assuming an interest rate volatility of

The on-the-run issue for ABC Company is shown below: Using the bootstrapping methodology, the spot rates are: Assuming an interest rate volatility of 10% for the 1 -year rate, the binomial interest rate tree for valuing a bond with maturity of up to three years is shown below: a) Demonstrate using the 3-year on-the-run issue that the binomial interest rate tree above is in fact an arbitrage free tree

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