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Suppose That the One-Year and Two-Year Zero-Coupon Rates Are 6 rdr _ { d }

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Suppose that the one-year and two-year zero-coupon rates are 6% and 7%,respectively (assume continuous compounding) .After one year,let the one-year zero-coupon rates move down to rdr _ { d } or up to ru=1.2rdr _ { u } = 1.2 r _ { d } ,with equal probability.The rate rur _ { u } that is arbitrage-free under these conditions is

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Definitions:

De-energize MCR Coil

The process of removing electrical power from a Master Control Relay (MCR) coil, which stops the current path in the control circuit.

Disconnect Switch

A disconnect switch, also known as an isolator switch, is a device used to ensure that an electrical circuit is completely de-energized for service or maintenance.

JSR Instruction

An assembly language instruction meaning "Jump to SubRoutine," directing the program flow to a specified subroutine.

Subroutine Area

Part of a program dedicated to a subroutine, which is a set of instructions designed to perform a frequently used operation.

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