The three$-$period binomial interest rate tree provided below gives one$-$period interest rates and prices of zero$-$coupon bonds. Starting at t $=0,$ you are provided with the one$-$period interest rate and prices of zero$-$coupon bonds with maturities of one period, two periods, three periods, and four periods. At t $=1,$ you are provided with the one$-$period interest rate and prices of zero$-$coupon bonds with maturities of one period, two periods, and three periods. At t $=2,$ you are provided with the one$-$period interest rate and prices of zero$-$coupon bonds with maturities of one period and two periods. At t $=3,$ you are provided with the one$-$period interest rate and prices of zero$-$coupon bonds with maturity of one period. Calculate the value of a European call option on a four$-$period zero$-$coupon bond. The call option expires in two periods and has an exercise price of $0\mathrm{.}85.$

A$.$

$0\mathrm{.}0150$

B$.$

$0\mathrm{.}0024$

C$.$

$0\mathrm{.}0053$

D$.$

$0\mathrm{.}0294$QUESTION $1$

The three$-$period binomial interest rate tree provided below gives one$-$period interest rates and prices of zero$-$coupon bonds. Starting at $t=0,$ you are provided

with the one$-$period interest rate and prices of zero$-$coupon bonds with maturities of one period, two periods, three periods, and four periods. At $t=1,$ you are

provided with the one$-$period interest rate and prices of zero$-$coupon bonds with maturities of one period, two periods, and three periods. At $t=2,$ you are

provided with the one$-$period interest rate and prices of zero$-$coupon bonds with maturities of one period and two periods. At $t=3,$ you are provided with the

one$-$period interest rate and prices of zero$-$coupon bonds with maturity of one period.

Calculate the value of a European call option on a four$-$period zero$-$coupon bond. The call option expires in two periods and has an exercise price of $0\mathrm{.}85.$