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Homework answers / question archive / A zero coupon bond currently has a YTM of 3%
A zero coupon bond currently has a YTM of 3%. In a year the YTM might rise to 4.8% or it might fall to 2%. There is a call option on the bond with a strike price of 95.65. The chance of a rate increase is as likely as a rate decrease. What is the call option worth? Use a discrete time discount rate. Answer in dollars to the nearest penny.
