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Problem 3 You are given the following risk-free spot rates for one to four years:...

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Problem 3 You are given the following risk-free spot rates for one to four years: a. What is the value of a risk-free four-year bond with an annual coupon of 4.00% ? b. Now you have developed the following binomial interest rate tree for the coming periods as shown: Show, using backwards induction, that the value of a risk-free four-year bond with an annual coupon of 4.00% will result in the same value as calculated above in (a). Problem 3 You are given the following risk-free spot rates for one to four years: a. What is the value of a risk-free four-year bond with an annual coupon of 4.00% ? b. Now you have developed the following binomial interest rate tree for the coming periods as shown: Show, using backwards induction, that the value of a risk-free four-year bond with an annual coupon of 4.00% will result in the same value as calculated above in (a)

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