In the Ho & Lee (1986)model,assume That the Initial Curve $\delta = 0.95$

question 9

Multiple Choice

In the Ho & Lee (1986) model,assume that the initial curve of zero-coupon rates for one and two years is 6% and 7%,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 maturity call option on a two-year $100 face value zero-coupon bond in the up node after one year at a strike of $92 will be

• A)1.10
• B)1.20
• C)1.30
• D)1.40

---

Definitions:

Acquisition Date

The date on which control of the assets and operations of an acquired company is transferred to the buyer.

Acquired Goodwill

The excess of the purchase price over the fair value of the net assets acquired in a business combination, reflecting intangible assets like brand reputation, customer relationships, etc.

Impairment

A reduction in the recoverable amount of a fixed asset or goodwill below its carrying amount, leading to an adjustment in the value of the asset on the balance sheet.

Consideration Transferred

The total amount of cash, assets, or other resources given up by an acquiring entity to obtain control of another business in a business combination.