- 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, the two adjacent forward rates in the tree are ______ standard deviation(s) apart.
A. one
B. two
C. four
Explanation: The lower rate is one standard deviation below the mean, and the higher rate is one standard deviation above the mean.
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