jarobi04

That's a good point regarding how it's based on a *known* future price, principal and coupon known ahead, which then can be used for "guessing" what rates could achieve this price. Also, the fact that it's a good way for valuing bonds with embedded options. All fine and dandy, but may be the below statement is the real benefit:

> By adjusting this tree to meet market conditions you can study other characteristics such
> as duration

Anyone can cite some examples?