Chartered Financial Analyst Level 2
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An analyst gathers the following data about a binomial interest rate tree for an option-free, annual coupon bond maturing in two years.
| Time 1 Bond Value | Time 1 Forward Rate |
|-------------------|---------------------|
| Upper node | 99.715 | 2.292% |
| Lower node | 100.247 | 1.749% |
If the current 1-year spot rate is 1.5% and the bond pays a coupon of 2.0%, the current value of the bond using the backward induction methodology is closest to:
An analyst gathers the following data about a binomial interest rate tree for an option-free, annual coupon bond maturing in two years.
| Time 1 Bond Value | Time 1 Forward Rate |
|-------------------|---------------------|
| Upper node | 99.715 | 2.292% |
| Lower node | 100.247 | 1.749% |
If the current 1-year spot rate is 1.5% and the bond pays a coupon of 2.0%, the current value of the bond using the backward induction methodology is closest to:
Exam-Like
A
98.50.
B
99.96.
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