It took me a while to at least get a high level understanding, but can we assume that on the test that the interest rates(high,low) will be given, so we just have to calculate the bond values in each period? Or at least give us at least one Interest rate to calculate the other in the same period? Just making sure there’s no other angles I’m missing
i’d say that’s a fair interpretation, yes. i don’t think they’ll go much beyond that- maybe saying it’s callable at par or something to see if you’re asleep at the wheel going backwards or they could ask the value of a call/put option from the tree, but i wouldn’t think in a test that you should be able to do your calcs in 3 minutes per question they would get that much more complicated than you mentioned above. if they show up at all. last year i don’t think there was anything binomial tree, but i can’t remember.
interest rates in binomial model are generally computed through computer software…not expected on exam …they should provide interest rates