c) An analyst models the spot interest rate with the following stochastic differential equation: dR = (u - Rt)dt + dB, where u

Question

c) An analyst models the spot interest rate with the following stochastic differential equation:
dR = (u - Rt)dt + dB, where u is a positive constant.
Using Ito's lemma on the function f(t, Rt) = exp(t) Rt show that:
R₁ = μ + exp(-t) (R₁ -μ) +exp(-(t-s)) dBs

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