Assume Annual Compounding $\sigma = 0.30$ What Are the One-Year Rates (Up and Down)after One Year

question 22

Multiple Choice

Assume annual compounding.The one-year and two-year zero-coupon rates in the BDT model are 6% and 7%.The volatility is given to be $\sigma = 0.30$ .What are the one-year rates (up and down) after one year?

• A)9.2% and 6.1%
• B)9.6% and 5.8%
• C)10.0% and 4.0%
• D)10.4% and 5.7%

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