In the Ho & Lee (1986) Model, Assume That the Initial

Multiple Choice

In the Ho & Lee (1986) model, assume that the initial curve of zero-coupon discount bond prices for one and two years is $0.9434$ and $0.8734$ , respectively. Assume that the probability of an upshift in discount functions is equal to that of a downshift. If the parameter $\delta = 0.95$ , then the price of a one-year zero-coupon bond in the up node after one year will be

A) 0.9282
B) 0.9496
C) 0.9563
D) 0.9678