- 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

###
**CFA Practice Question**

The short interest rate is mean reverting in the Vasicek model. This means:

B. Rates are close to the mean.

C. The average of short rates is its mean.

A. Rates revert to a long-time level.

B. Rates are close to the mean.

C. The average of short rates is its mean.

Correct Answer: A

It assumes the economy has a constant long-run interest rate that the short-term interest rate converges to over time. The CIR model assumes this too.

###
**User Contributed Comments**
0

You need to log in first to add your comment.