You Are Given the Following Interest Rate Tree

question 2

Short Answer

You are given the following interest rate tree. Use it when required in the
exercises.
-Using risk neutral pricing obtain the value for a put option on a 1.5 year zero coupon bond with K = 97.40, maturity at t = 1. Assume that p? = 0.7038 is constant over time.

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Definitions:

APS

Stands for Aggregate Planning Strategies, techniques used in business to match supply and demand by adjusting production rates, labor levels, and inventory.

MPC

The marginal propensity to consume, which is the proportion of any additional income that is spent on consumption rather than being saved.

MPS

Marginal Propensity to Save, which measures the proportion of additional income that households save rather than spend on consumption.

APS

The Average Propensity to Save, which is the proportion of income that households save rather than consume.