##### 11 An analyst is valuing a 2-year, European-style call option on a 1-year spot rate. The notional value of the option is $1 million, and the exercise rate is 3.5%. The risk-neutral probability of an up move is 0.50. The current and expected 1-year interest rates are shown in the exhibit below, along with the values of a 1-year zero-coupon bond of $1 notional value for each interest rate. At time step 0, the value of the interest rate option is closest to: | Chartered Financial Analyst Level 2 Quiz