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Basic Question 3 of 4
When we calibrate a tree to a yield curve, which statement is FALSE?
B. Both rates next period could be lower than the current rate.
C. One rate must be greater than or equal to the current rate, and one rate must be lower than or equal to the current rate.
A. Both rates next period could be greater than the current rate.
B. Both rates next period could be lower than the current rate.
C. One rate must be greater than or equal to the current rate, and one rate must be lower than or equal to the current rate.
User Contributed Comments 1
| User | Comment |
|---|---|
| Logaritmus | Extreme wording on question determine answer. |
I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
Learning Outcome Statements
describe the process of calibrating a binomial interest rate tree to match a specific term structure;
describe the backward induction valuation methodology and calculate the value of a fixed-income instrument given its cash flow at each node;
compare pricing using the zero-coupon yield curve with pricing using an arbitrage-free binomial lattice;
CFA® 2025 Level II Curriculum, Volume 4, Module 27.