Asked by RVE

A default-free coupon bond maturing in 6 months, that pays a coupon of 2.00 after 3 months and makes a final payment of 102.00 (the last coupon and the principal), trades at 101.00 today. Moreover, a 3-month default-free zero-coupon bond is traded at 99, and pays 100.00 at maturity.

Enter the price of the 6-month default-free zero-coupon bond that pays 100 at maturity, such that there are no arbitrage opportunities:

99.009732-correct

"answered in full"
Answered by jeb
The one-year and two-year risk-free rates (yields) are 1% and 1.025%, respectively. Our model of the term structure says that one year from now the one-year interest rate will be one of the following two values: 0.01 or 0.01*u, where u is the up factor. Here, the rates are the effective annual rates, so that one dollar invested in a T-bond returns (1+r)^T dollars, where T is measured in years. The model also says that the risk-neutral probabilities of these two possibilities are the same, equal to 1/2.

Enter the price of the one-year European put option written on the two-year risk-free zero coupon bond paying 100 at maturity, with strike price 98.95
Answered by a
Can you show workings for the answer above as I cannot obtain it?
Answered by Anonymous
Please, could you help me with this update?

A default-free coupon bond maturing in 6 months, that pays a coupon of 2.00 after 3 months and makes a final payment of 102.00 (the last coupon and the principal), trades at 101.00 today. Moreover, a 3-month default-free zero-coupon bond is traded at 99, and pays 100.00 at maturity.
Enter the price of the 6-month default-free zero-coupon bond that pays 100 at maturity, such that there are no arbitrage opportunities:
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