Question #10
Reading: Reading 26 The Arbitrage-Free Valuation Framework
PDF File: Reading 26 The Arbitrage-Free Valuation Framework.pdf
Page: 4
Status: Correct
Correct Answer: A
Question
For a 3-year, semiannual coupon payment bond, the number of interest rate paths that would be generated using the pathwise valuation is closest to:
Answer Choices:
A. 4
B. 64
C. 32
Explanation
For a 3-year, semiannual coupon bond, there will be six nodal periods resulting in 2(6-1) =
32 paths.