CFA Practice Question

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CFA Practice Question

Under the Ho-Lee model, the probability that the yield curve can move up or down at each node is called the "implied risk-neutral probability." The Ho-Lee model:

A. assumes market professionals are risk-neutral.
B. does not assume market professionals are risk-neutral.
C. assumes market professionals are risk-averse.
Correct Answer: B

The name is misleading: the model does not make such an assumption.

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