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Calibrating a binomial tree: For Q1-3, you need to calibrate a 2-period binomial tree given...

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Accounting

Calibrating a binomial tree:

For Q1-3, you need to calibrate a 2-period binomial tree given the following par curve. Assume a volatility of 20%.

Year Par rate
1 2%
2 3%

1. What is i0? (Be precise to 4 decimals.)

2. What is i1H? (Be precise to 4 decimals.)

3. What is i1L? (Be precise to 4 decimals.)

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