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Assume Annual Compounding σ=0.30\sigma = 0.30 What Are the One-Year Rates (Up and Down)after One Year

Question 22

Multiple Choice

Assume annual compounding.The one-year and two-year zero-coupon rates in the BDT model are 6% and 7%.The volatility is given to be σ=0.30\sigma = 0.30 .What are the one-year rates (up and down) after one year?


A) 9.2% and 6.1%
B) 9.6% and 5.8%
C) 10.0% and 4.0%
D) 10.4% and 5.7%

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