- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 29. The Arbitrage-Free Valuation Framework
- Subject 2. The Basics of Creating a Binomial Interest Rate Tree

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**CFA Practice Question**

In the binomial interest rate tree, assume i

_{0}= 3%, i_{1, 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:**i

_{0}x σ = 0.03 x 0.15 = 0.45% or 45 bps.

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**User Contributed Comments**
2

User |
Comment |
---|---|

darbyland |
anyone on this? |

sumeetb |
Curriculum pg 85 |