- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 27. The Arbitrage-Free Valuation Framework
- Subject 2. The Basics of Creating a Binomial Interest Rate Tree
CFA Practice Question
In the binomial interest rate tree, the mean of two possible rates at each node is:
B. The implied forward rate
C. The actual spot rate
A. The expected spot rate
B. The implied forward rate
C. The actual spot rate
Correct Answer: B
The two rates are one standard deviation from the implied forward rate.
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