- CFA Exams
- CFA Level I Exam
- Study Session 12. Fixed Income (1)
- Reading 32. The Term Structure and Interest Rate Dynamics
- Subject 6. Modern Term Structure Models

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**CFA Practice Question**

In the CIR model, dr = a(b-r)dt + σ r

B. b

C. r

^{1/2}dz, the long-term interest rate is:A. a

B. b

C. r

Correct Answer: B

The drift factor, a(b-r)dt, is exactly the same as in the Vasicek model. It ensures mean reversion of the interest rate towards the long run value b, with speed of adjustment governed by the strictly positive parameter a.

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