Assume a = 0

question 7

Multiple Choice

Assume a = 0.10,b = 0.15,r = 0.04 and σ = 0.35.Using the CIR model,calculate the price of a zero coupon bond maturing in 6 years.

• A) 0.6042
• B) 0.7042
• C) 0.8042
• D) 0.9042

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Definitions:

Indirect Method

A way of calculating cash flows for the cash flow statement where net income is adjusted for changes in balance sheet accounts to reflect cash operations.

Statement of Cash Flows

A financial statement showing the cash inflows and outflows from operating, investing, and financing activities over a specific period.

Operating Activities

Day-to-day business functions and transactions related to a company's core business operations, such as sales and purchasing.

Net Income

The profit a company has after all expenses, taxes, and costs have been subtracted from total revenue.