Correct Answer: B

When a binomial interest rate tree is properly calibrated to the spot curve, it should produce the same price for an option-free bond as discounting with spot rates. If the tree is not properly calibrated, the two methods will yield different prices.

Why other options are incorrect:

• A: If interest rate volatility is assumed to be zero, the binomial tree would collapse to a single path, and both methods should give the same result.
• C: Using an insufficient number of paths might affect the accuracy of Monte Carlo simulations, but binomial trees are discrete models with a fixed number of paths determined by the number of time steps.