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

question 13

Multiple Choice

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 $r _ { d }$ or up to $r _ { u } = 1.2 r _ { d }$ , with equal probability. The rate $r _ { u }$ that is arbitrage-free under these conditions is

• A) 5.92%
• B) 6.63%
• C) 7.27%
• D) 8.73%

---

Definitions:

Self-Report Measures

Techniques in research where participants provide information or responses about themselves, often used in surveys and questionnaires.

Serious Crime

Offenses that are considered particularly harmful to society, often involving violence or significant loss and punished by severe penalties.

Consensus Crime

Crimes that are universally agreed upon as inherently wrong or immoral, generating widespread social agreement on their prohibition.

Sudden Infant Death Syndrome (SIDS)

Sudden Infant Death Syndrome (SIDS) is the unexplained death, usually during sleep, of a seemingly healthy baby less than a year old.