In the Ho & Lee (1986)model,assume That the Initial Curve $0.9434$

question 8

Multiple Choice

In the Ho & Lee (1986) model,assume that the initial curve of zero-coupon discount bond prices for one and two years is $0.9434$ and $0.8734$ ,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 zero-coupon bond in the up node after one year will be

• A)0.9282
• B)0.9496
• C)0.9563
• D)0.9678

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