The on-the-run issue for the Net Company is shown below along with the spot rates...
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The on-the-run issue for the Net Company is shown below along with the spot rates (assume annual compounding): Maturity (years) YTM (%) 7.5 7.6 7.7 Market Price 100 100 100 Spot Rates (%) 7.500 7.604 7.710 Assuming an interest rate volatility of 10% for the 1-year rate, the binomial interest rate tree for valuing a bond with a maturity of up to three years is shown below: 10.0% Binomial Rate Tree at interest rate volatility of: Period: 0.0 1.0 2.0 9.6034% 8.4820% 7.5000% 7.8626% 6.9445% 6.4374% Using the binomial tree, determine the value of an 8.5%, 3-year, option-free bond at each node. The on-the-run issue for the Net Company is shown below along with the spot rates (assume annual compounding): Maturity (years) YTM (%) 7.5 7.6 7.7 Market Price 100 100 100 Spot Rates (%) 7.500 7.604 7.710 Assuming an interest rate volatility of 10% for the 1-year rate, the binomial interest rate tree for valuing a bond with a maturity of up to three years is shown below: 10.0% Binomial Rate Tree at interest rate volatility of: Period: 0.0 1.0 2.0 9.6034% 8.4820% 7.5000% 7.8626% 6.9445% 6.4374% Using the binomial tree, determine the value of an 8.5%, 3-year, option-free bond at each node
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