- CFA Exams
- CFA Level I Exam
- Study Session 12. Fixed Income (1)
- Reading 33. The Arbitrage-Free Valuation Framework
- Subject 2. Interest Rate Trees and Arbitrage-Free Valuation
CFA Practice Question
In the binomial interest rate tree, assume i0 = 3%, i1, L is 2.5%, and the volatility of the one year rate is 15%. The one standard deviation of the one-year rate is:
A. 37.5 bps
B. 43.7 bps
C. 45 bps
Explanation: i0 x σ = 0.03 x 0.15 = 0.45% or 45 bps.
User Contributed Comments 2
| User | Comment |
|---|---|
| darbyland | anyone on this? |
| sumeetb | Curriculum pg 85 |