A. State Equivalent Martingale Measure Result.
B. For the case of numeraire security being the zero coupon bond, what is the result for the present value of security price f, depending on the stochastic interest rate, I, described by the short rate process dr =rdt + Zdz. (Be sure to include the key assumption about the zero coupon bond.)
a) It remains constant.
b) It follows a random walk.
c) It decreases exponentially.
d) It increases linearly.
C. In a world "FRN w/r to the ZC bond" show that the expected future price is the forward price (be sure to include the statement of any assumptions).