I’m struggling with question regarding bond valuation. Given information below, I’m supposed to calculate fair value of Bond B2:
Bond B2: four-year corporate bond with a par value of 1000 EUR, annual coupon of 6% paid annually. POD = 1.5% (each date), recovery rate = 30%.
|Par Curve for Annual Payment Benchmark Government Bonds|
|Coupon Rate||Price||Discount Factor||Spot Rate||Forward Rate|
My question is: How, using the information from above calculate the value of interest rate at t=1 given volatility of 20%?
The answer says it should be 2.1180% on the upper node and 1.4197% and the lower node, but I can’t get even similar values… Constructing the tree is basically starting point to calculate fair value. Appreciate any help.