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Risk neutral probability for the up move in first step

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Reference no: EM131117765

Consider 8-month spot interest rates evolving in the following two-step binomial tree over 16 months, i.e., with 8 months in each of the next two steps. The current 16-month spot interest rate is 5.15% and the 24-month spot interest rate is 5.3%. Find the following by assuming monthly compounding.

Find the risk neutral probability for the up move in first step.

Reference no: EM131117765

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