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An example of a standard tree used by FIData is given in Figure 2.Figure 2: Binomial Interest Rate Tree
|Year 0||Year 1|
FIData's website uses rates in Figure 2 to value a two-year, 5% annual-pay coupon bond with a par value of $1,000 using the backward induction method.
The question is: Using the backward induction method, the value of the 5% annual-pay bond using the interest rate tree given in the three bonds in Figure 2 is closest to: