Given the following info:

How do we generate the following binomial interest rate tree? Please ignore the non-% figures

For example, at Date 2, how do we obtain 2.9493% for the middle node?

Thanks so much in advance

Given the following info:

How do we generate the following binomial interest rate tree? Please ignore the non-% figures

For example, at Date 2, how do we obtain 2.9493% for the middle node?

Thanks so much in advance

You generally use something like Solver in Excel, adjusting the rates until a par bond is priced correctly.

The process is iterative: first price a 1-period bond correctly, then a 2-period bond, then a 3-period bond, and so on.

You won’t have to do that on the exam; you’ll be given a calibrated tree.

Thanks very much @S2000magician . I thought it was weird the CFA question bank didn’t give the interest rate tree

My pleasure.