This refers to the bi-nomial tree on pg 191 (Options-CFAI Text). I got the price of zero-coupon bond with I=10.51%, N=1, FV=1, PV =.9048, but dont understand how the prices for N=2,3,4 are calcualted . for N=2, I=10.51%,FV=1, I get a different value from the one given (.08106)?

this particular author - and reading has lot of rounding issues. Not sure if this is due to that.

Let me show you how to do N=3, using Excel formulas From top node. 86,37 = -PV (15.78%, 1,0, 100) 89,45 = -PV (11.8%, 1, 0, 100) 92,64 = -PV (7.95%, 1, 0, 100) Working backward 77.77 = (Average(86.37+89.45)+coupon=0)/(1+13.04%) 82.58 = (Average(92.64+89.45)+coupon=0)/(1+10.25%) Now first node 72.55 = (Average(77.77+82.58)+coupon=0)/(1+10.51%) HOpe it is clear.

thanksâ€¦ elcfa. been some time since I did thatâ€¦

Thanks, have to go back to basics