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Basic Question 8 of 9
For a t-period binomial interest rate tree, there are ______ final payoffs.
B. 2t
C. t + 1
A. t2
B. 2t
C. t + 1
User Contributed Comments 2
| User | Comment |
|---|---|
| cfa2017 | Given current level of short-term rate r, next-period short rate can take on only two possible values: an upper value ru and a lower value rl, with equal probability of 0.5. In period 2, the short-term interest rate can take on four possible values: r uu, r ul, r lu, r ll. |
| davidt87 | cfa2017 no dude, did you even read the answer? In period 2 there are 3 final payoffs, because the upper and lower values of the period 1 payout options combine to the same middle value: 5 - 4 - 3 3 - 2 - 1 |
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Learning Outcome Statements
describe a binomial interest rate tree framework;
CFA® 2025 Level II Curriculum, Volume 4, Module 27.