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 rates for one and two years is 6% and 7%, 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 maturity call option on a two-year $100 face value zero-coupon bond in the up node after one year at a strike of $92 will be

A) 1.10
B) 1.20
C) 1.30
D) 1.40