Suppose that the one-year and two-year zero-coupon rates are 6% and 7%,respectively (assume continuous compounding).After one year,let the one-year zero-coupon rates move down to $r _ { d }$ or up to $r _ { u } = 1.2 r _ { d }$ ,with equal probability.The rate $r _ { u }$ that is arbitrage-free under these conditions is
A)5.92%
B)6.63%
C)7.27%
D)8.73%

Question

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The Answer of Suppose that the one-year and two-year zero-coupon rates are 6% and 7%,respectively (assume continuous compounding).After one year,let the one-year zero-coupon rates move down to $r _ { d }$ or up to $r _ { u } = 1.2 r _ { d }$ ,with equal probability.The rate $r _ { u }$ that is arbitrage-free under these conditions is
A)5.92%
B)6.63%
C)7.27%
D)8.73%

Suppose That the One-Year and Two-Year Zero-Coupon Rates Are 6 rdr _ { d }rd​

Suppose That the One-Year and Two-Year Zero-Coupon Rates Are 6 $r _ { d }$