Assignment:
Answer the following questions about valuing bonds with embedded options using a binomial interest rate tree:
a. Why is the procedure for valuing a bond with an embedded option called “backward induction”?
b. Why is the value produced by a binomial model referred to as an “arbitrage-free” value?
Your answer must be, typed, double-spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format and also include references.