Hi Guys!
I’ve got a quite specific question on the reading 44. In the question 4 and 5 in the curriculum, the solution uses (p 381-382), for discounting the Year 1 Cash flows, the par rate instead of the rate in the binomial interest rate tree. It’s the first time I see that. Does someone know why? Are there other cases where you use the par rates instead of the binomial interest rate tree? Thank you in advance!
I’ve got a quite specific question on the reading 44. In the question 4 and 5 in the curriculum, the solution uses (p 381-382), for discounting the Year 1 Cash flows, the par rate instead of the rate in the binomial interest rate tree. It’s the first time I see that. Does someone know why? Are there other cases where you use the par rates instead of the binomial interest rate tree? Thank you in advance!